2017-04-21
Amended rules will allow credit unions to more easily accumulate sustainable capital
As the commenced credit union sector reform is under way, the Board of the Bank of Lithuania amended the rules for the calculation of the capital adequacy of credit unions, taking into account that the implementation of the credit union reform provided for in existing laws mitigates risks arising within this sector.
‘This is another step towards the credit union reform, which should strengthen the confidence of credit unions in their future and encourage them to bring themselves together into central credit unions. This is also a reminder to this financial sector that central credit unions must become more integrated and that time has come to prepare for ensuring efficient activities of the system of credit unions. The amendments to the rules will enable individual credit unions to improve their capital ratios and facilitate accumulation of sustainable capital, as is the aim of the reform,’ said Vytautas Valvonis, Director of the Supervision Service of the Bank of Lithuania.
The amended Rules for the Calculation of Prudential Requirements for Credit Unions lay down that, in calculating the capital adequacy requirement for credit unions, a risk weight of 0 per cent are assigned to the funds of credit unions held with central credit unions. Calculation of additional capital requirement for loans provided by credit unions to their associated members has also been abandoned. Amendments encouraging accumulation of capital will be applicable as of 30 June 2017.
In preparation for the credit union reform, a valuation of the asset quality of all credit unions and the Lithuanian Central Credit Union has already been performed. It was performed by the Bank of Lithuania together with independent auditors. The Bank of Lithuania plans to publish its results in the near future.
The way for the credit union reform was opened by amendments to laws adopted by the Seimas in 2016, which provide conditions for the establishment of new central credit unions as of this year. Currently, one central credit union is in operation. As of 1 January 2018, all credit unions will have to be members of some central credit union, while those who did not wish to carry on activities based on cooperation principles – to get restructured into commercial banks.
In early April, 72 credit unions operated in Lithuania, with a total membership of over 160 thousand. The Lithuanian Central Credit Union (LCCU) included 61 credit unions, 11 operated independently.