2017-08-31
Credit unions granted more loans and operated profitably, some should continue strengthening capital
This year credit unions continued to expand the loan portfolio, which at the end of the half-year amounted to EUR 379.3 million, a year-on-year increase of nearly a fifth. In H1 2017, the credit union sector, which is undergoing restructuring, earned EUR 0.5 million in profit, while capital strengthening remains one of the major strategic goals for some of the credit unions.
‘The credit union sector, which is under reorganisation, has already ticked off most of its goals, yet it is crucial to continue strengthening capital and credit union management. The sector, which will begin operating under new regulations starting 2018, must dispel any doubts regarding operational reliability and transparency,’ said Vytautas Valvonis, Director of the Supervision Service of the Bank of Lithuania.
The share capital of credit unions increased by 1.2 per cent in Q2 2017, to EUR 57.9 million at the end of the quarter. The operating result of the credit union sector, important to capital formation, was positive – according to unaudited data, the sector yielded EUR 0.5 million in profit over the half-year. This was driven by the fact that 48 credit unions earned a EUR 2.9 million profit; however, 23 credit unions bore a loss of EUR 2.4 million, which minimised the overall result.
In Q2 2017, the assets of credit unions contracted by 1.3 per cent, to EUR 641 million. Such a change was largely influenced by the diminishing sight deposits with credit unions uniting farmers as financing needs during the agricultural season had increased. The total amount of credit union deposits shrank by EUR 19.5 million in Q2 2017 (3.4%), standing at EUR 561.3 million as at 1 July 2017. Fixed-term deposits, which at the end of the period comprised three-fourths of total deposits with credit unions, grew by EUR 3 million.
According to the data as at 1 July 2017, the capital adequacy ratio of the credit union system stood at 19.29 per cent (minimum requirement – 13%), liquidity ratio – at 44.41 per cent (minimum requirement – 30%). On the reporting date, 11 credit unions did not comply with prudential ratios. In Q3 2017, a share of credit unions reported that they had remedied the situation and are now in compliance with the requirements. Some of the credit unions were set individual deadlines for resolving the situation. The Bank of Lithuania applies specific enforcement measures to credit unions that are not in compliance with prudential requirements and have not taken any action.
As of 1 July 2017, 71 credit unions operated in Lithuania; however, in August operations of Baltija credit union and Namų credit union were suspended, and temporary administrators were appointed. Activities of these institutions were suspended in prompt response to the results of non-target inspections revealing that the operations of credit unions, which seem to be involved in criminal activity, may lead to material losses. The final decision on the operations of these credit unions will be made after the temporary administrators submit their conclusions with regard to the financial standing of these institutions and ways to protect interests of credit union depositors, other creditors and clients.
The Review (in Lithuanian) of the Activities of Credit Unions (2017/Q2) and the summary information (in Lithuanian) on compliance with prudential requirements and ratios is available on the Bank of Lithuania website.