Bank of Lithuania

The amount of deposits accepted by credit unions hiked by almost 30 per cent—to 1.8 billion litas, and their loan portfolio increased by more than 20 per cent—to 1.1 billion litas. With the ongoing strong development of the sector, there should be particular focus on risk management. While credit unions almost tripled their specific provisions against bad loans last year, in the assessment of individual institutions there still are signs that the possibilities for loan repayment are estimated with insufficient conservativeness.

According to unaudited statements, last year 52 credit unions reported a profit of 10.3 million litas, yet 25 credit unions operated at a loss, which amounted to 65.4 million litas. The overal annual operating performance of credit unions is a loss of 55.1 million.

“This has been the worst performance since the beginning of the operation of credit unions in 1995. Their loss-bearing operation was driven by loan depreciation and the loss incurred by two credit unions (National Credit Union and Švyturio taupomoji kasa) whose licences were revoked in January of this year,” as the Director of the Supervision Service of the Bank of Lithuania, Vytautas Valvonis, summed up the results.

According to the statements presented on 1 January 2013, credit union assets grew by 26.4 per cent over the year—to 2.1 billion litas.

The liquidity ratio of the entire system of credit unions was 48.98 per cent (the ratio being 30%). Credit unions complied with their capital adequacy ratio with a substantial reserve—at the beginning of this year, this ratio was 16.96 per cent (the ratio being 13%), however, the National Credit Union and Švyturio taupomoji kasa did not comply with this ratio.

In order to prevent more serious problems in the future and to reduce risks, the requirements for credit unions have been revised and new business safeguards are applied. The new liquidity coverage ratio should serve as a safety cushion.

In addition, starting from 1 February 2013, the maximum exposure requirement was limited to 500 thousand litas. Starting from 1 April, the capital adequacy ratio for credit unions, a substantial portion of whose loans have been granted to associated members (legal entities), and the liquidity ratio for credit unions, in whose deposits growth exceeds sustainable rates, are to be tightened.

As a result, the supervision of credit unions is being intensified and more of these institutions are being subject to inspection.  In November of last year, credit unions were also bound by the Board of the Bank of Lithuania to post their detailed annual financial statements on their websites.

“Credit unions are credit institutions operating on a co-operative basis; due to particularly strong expansion, some of them, however, have departed from the classical definition of the credit union, and their operations are becoming risk involving. This particularly applies to customer risk assessment,” said V. Valvonis. 
Out of the 75 credit unions currently in operation, 63 are members of the Central Credit Union of Lithuania (CCUL) and 12 do not belong to it.

According to unaudited statements, in 2012 the CCUL reported a profit of 383 thousand litas (in 2011, a loss of 15.3 million was incurred). Major contribution to the CCUL’s operating performance was interest income received from investment in government securities.

Following an increase of 15.7 million litas in 2012, on 1 January 2013 the CCUL’s assets stood at 370.3 million litas. The deposit portfolio of credit union members of the CCUL shrank by 1.6 percent over the year. On 1 January 2013, credit union deposits (296.8 million litas) remained the key source of financing CCUL assets.

On 1 January 2013, 77 credit unions with a total of nearly 146 thousand members held licences issued by the Bank of Lithuania. In the final quarter last year, the membership increased by 4.2 thousand, and throughout 2012—by almost 17 thousand. In 2012, three new credit unions began operating.