2012-12-13
The activities of the National Credit Union have been limited, a temporary administrator has been appointed
Having evaluated the National Credit Union’s (NCU) risky activities and the established violations of the law, the Board of the Bank of Lithuania until 31 January, 2013, has restricted the activities of this institution and appointed a temporary administrator— Alvydas Mogenis, head of the company “Business Consultants” (Verslo konsultantai). During this period of limited activity, the NCU will not be able to provide financial services and carry out other activities (including return of deposits), unless it will be necessary for ensuring its operation during the moratorium. Until 28 December, 2012, the temporary administrator will be required to submit conclusions regarding the NCU’s financial position as well as proposals, which will be assessed before deciding on this union’s business prospects.
The Republic of Lithuania Law on Credit Unions provides enforcement measures that, when applied to the NCU during the targeted inspections, reveal the scale of the violations, as well as their multiplicity. The Inspection Commission’s assessments show that, after evaluating the additional calculated special provisions, its net assets would be less than its obligations. According to the inspection report’s data, the Union performed crediting operations for risky and opaque projects, didn’t abide to the principles of safe and reliable credit institution operation. The quality of NCU-provided loans was poor, and its financial statements didn’t reveal the actual financial state.
With especially rapid growth of the loan portfolio, the NCU granted a large portion of its loans without evaluating the assumed risks: they did not analyze the reality of the business plans of the credited enterprises, their implementation perspective, there was no checking of whether prospective borrowers provided correct data, which is necessary in assessing their risks; the pledged assets for loans did not guarantee execution of obligations. Decisions on granting loans were often economically unsubstantiated and opaque. Suspicious transactions are examined by the Financial Crime Investigation Service, in collaboration with the Bank of Lithuania.
In appointing enforcement measures, taken into account is the fact that the NCU’s shortfalls and law violations were not identified for the first time; because of that it had previously been given written instructions that imposed sanctions and set out additional requirements regarding limitation of operational risk.
Even after the inspections carried out 15-26 October, 2012, and in spite of the denoted need for special provisions, the NCU continued its risky lending activities: it kept on lending large sums to legal persons, and problem loans were transferred to third parties. Therefore, since 16 November, the Bank of Lithuania’s Supervision Service had decided to restrict the right to provide certain services: receiving of new fixed-term deposits from non-professional market participants has been forbidden, and the new loan amount per customer is limited to LTL 30 000.