2017-05-31
In the first quarter of 2017, Lithuanian credit unions granted more loans by a fifth, while their deposit portfolio remained unchanged year on year. Their share capital posted minimum growth and asset value impaired.
‘The operating result of credit unions for the first three months of this year is positive. It was driven by the fact that expenditure dropped faster than income. As usually, the largest share of credit union income (80%) was comprised of interest income. The largest share of expenditure (63%) was comprised of operating expenses,’ says Renata Bagdonienė, Director of the Prudential Supervision Department of the Bank of Lithuania.
Over the first quarter of this year, 43 credit unions earned a profit of EUR 1.8 million; however, 29 credit unions sustained a loss of EUR 1.5 million. This brought the sector’s profit down to EUR 0.3 million; it was, however, higher than the year-on-year figure by 0.1 million.
The loans granted by credit unions amounted to almost EUR 350 million in value. The amount of loans granted to natural persons has increased by EUR 8.5 million, to legal persons – by EUR 2.3 million since the beginning of the year. However, as members of credit unions fail to meet more and more of liabilities on time, the ratio of loans overdue for more than 60 days and assets taken over for debts to total loans has increased.
The share capital of credit unions stood at EUR 57.2 million at the end of March – nearly a fourth of it was comprised of sustainable shares, which are used to cover losses sustained by credit unions.
Since the beginning of the year the fraction of these shares in share capital has grown by over 10 p.p., but credit unions will have to strengthen it to meet the requirements for the implementation of this sector’s reform.
With an increase in financial requirements before the agricultural season, credit union assets contracted by 1.4 per cent in the first quarter of this year, to EUR 649.5 million at the end of March (2.5% of the banking system assets). Accepted deposits, which are used to finance almost 90 per cent of assets, have declined since the beginning of the year as well, to EUR 580.8 million at the end of the quarter, similar to a year ago.
‘2017 is the year during which credit unions have to take a decision. Implementing the sector’s systemic reform, by the end of the year, they have to become banks or join central credit unions. Such a choice is provided for by the laws regulating credit union reform,’ says Bagdonienė. She adds that the deficiencies identified during a credit union asset quality review confirmed the necessity of restructuring the sector. However, the asset quality review process has not been completed in all credit unions so far. Some of them would have to adjust their asset value because of related expenses borne. Thus, for part of credit unions, strengthening their capital has remained a major strategic objective.
The Bank of Lithuania has already given consent for one credit union to be restructured into a specialised bank; one more credit union has submitted appropriate documents for consent. 13 credit unions established a new, United Central Credit Union in April 2017 and submitted the appropriate documents to the Bank of Lithuania to be granted a licence.
71 credit unions currently in operation in the country unite more than 160 thousand members. The operation of two credit unions was terminated this year.
At the end of March, 13 credit unions were not in compliance with prudential requirements (capital adequacy and maximum exposure to a single borrower requirement).