2016-07-18
Restructuring of credit union sector to begin with transparency test: asset quality of all credit unions will be subject to review
An asset quality review of all credit unions operating in Lithuania will be conducted by the end of this year; by the end of next year, their capital, self-regulation and cooperation will be strengthened, and a new system will be launched in 2018. In order for credit unions to become a viable alternative to commercial banks, the system will encourage sustainable development of credit unions, financing of communities, and small and medium businesses.
‘The first step in the restructuring is a comprehensive review of the financial health of credit unions. This is necessary in order to ensure that the vital reform of the sector is implemented based on highest transparency standards and mutual confidence of all parties involved in the restructuring. This test will enable to separate the wheat from the chaff, i.e. only financially viable and credible credit unions will participate in the new system, while those with deficiencies will have time to eliminate them,’ says Marius Jurgilas, Member of the Board of the Bank of Lithuania.
It is planned that the assets of all credit unions operating in the country will be reviewed and the assessment results will be publicly announced by the end of this year. Valuation of the assets will be conducted by an independent company that will win a public tender. Credit unions that will be lacking in capital following the valuation of the assets will have a one-year period to bridge the gap.
According to M. Jurgilas, in restructuring the sector, it is important to determine the real value of credit union assets so that undisclosed losses do not transfer into the new system. In this new system, credit unions will have to help one another if any of them faces issues. Therefore, it is important that all institutions within the sector begin participating in the new system under the same conditions.
It is projected that, by the end of 2017, all credit unions meeting legislative requirements and which have decided to operate on a cooperative basis will become members of central credit unions, i.e. will be responsible for one another. Members of central credit unions will be interested in effective self-regulation aimed at securing credit unions against bankruptcies and avoiding the use of tax payers’ funds when credit unions face issues.
Credit unions not willing to join central credit unions will have an alternative: they will be able to seek permission to restructure themselves into a specialised commercial bank. Such credit unions will be given a 5-year transitional period to achieve at least a EUR 1 million equity capital threshold.
Not only credit unions but also institutions meeting legislative requirements will be able to register as specialised commercial banks. The possibility to establish a specialised commercial bank was provided when amendments to the Law on Banks were adopted together with legal acts for implementing the credit union reform. Legalisation of such institutions will increase market competition as it will become easier to establish a bank and develop its activities.
In order for the restructuring of credit unions to be smooth, sector participants will be actively consulted by the Bank of Lithuania. 74 licensed credit institutions currently operate in Lithuania, of which 61 are part of the Lithuanian Central Credit Union. About 160 thousand members participate in the activities of credit unions.