Restructured credit union sector expanding and must accumulate required capital buffer
The enhanced credit union sector, which, as of this year, operates under new regulations, operated profitably and strengthened its capital.
‘Following restructuring, a stronger credit union sector has been out of losses and operates at a profit. It is important not to stop half-way, to increase operating and management efficiency, and to accumulate a capital buffer necessary to ensure safe and sound operation,’ says Vytautas Valvonis, Director of the Supervision Service at the Bank of Lithuania.
Total assets of credit unions amounted to €662.5 million at the end of the first half-year, an increase of 5.9% year on year. The deposit portfolio swelled by 3.8%, to €582.6 million at the end of the period under review. Deposits remain the main source of financing for credit unions, standing at 93% of credit unions’ total liabilities.
The portfolio of loans granted to members amounted to €438.1 million, growing 15.5% since last year. In the first half of this year, credit unions earned €2.3 million in profits. 47 credit unions operated profitably earning a €2.9 million profit, while 20 credit unions operated at a loss, incurring a €0.6 million loss.
After the sector’s restructuring, credit unions active in the country operate within one of the two Central Credit Unions. These operate as an additional safeguard of cooperative banking. The Lithuanian Central Credit Union includes 51, the United Central Credit Union – 11 members. Another 5 credit unions are undergoing restructuring into specialised banks. Credit unions that have chosen membership of a central credit union are able to work with partners that share a common business vision and to develop a common business model acceptable to all members.
Central credit unions monitor and manage risks assumed by their members, accumulate funds of stabilisation funds from which the solvency of credit unions would be recovered where necessary. Stabilisation funds must hold accumulated at least 1% of each central credit union’s assets. Towards the end of the first half-year, the Lithuanian Central Credit Union had accumulated 0.45%, the United Central Credit Union – 0.26% of a respective group’s assets in their stabilisation funds. Thus, in the transitional period, credit unions will have to increase funds in their stabilisation funds until their capital buffer reaches the required level.
At the end of the first half-year, 67 credit unions, with a total membership of 158.5 thousand, operated in Lithuania.
Review of the Activities of Credit Unions (Q2 2018) is published on the website of the Bank of Lithuania.