2013-05-10
The credit union sector, operating at a loss, should more conservatively assess loan payback opportunities and strengthen capital
In the first quarter of this year, with the withdrawal from the market of two bankrupting credit unions, the whole union system maintained an annual growth rate. With the continuing expansion of the sector, most attention was paid to managing these risks.
From 1 April 2012, the credit union loan portfolio increased by 10.1 per cent — to LTL 1.1 billion, the deposit sum in the corresponding period increased by 14.6 per cent — to LTL 1.77 billion.
In the first quarter of 2013, 40 credit unions earned an LTL 3.3 million profit, but 35 unions operated at a loss and experienced an LTL 15.1 million loss, therefore the general loss for the system equalled LTL 11.8 million.
“The loss was due to impaired loans, while some credit unions still don’t assess conservatively enough the loan payback opportunities. Therefore they will continue to be closely supervised, inspected,” summarized Vytautas Valvonis, Director of the Supervisory Authority of the Bank of Lithuania.
According to him, the special provisions formed by the credit unions are not sufficient for amortizing possible losses due to the decrease in the value of loans; therefore the Bank of Lithuania, seeking that credit unions more conservatively assess assumed risk, prepare and renew necessary documents that regulate assessment of loans and risk management.
The credit unions must take action to strengthen the capital base, necessary for covering potential losses. The shareholders of the credit unions, being its owners, are responsible for the activities of the institution and should add their monetary contributions to solving financial problems. However, experience shows that the credit union shareholders are not really willing to help their own credit institutions when they are confronted with financial difficulties.
This year, with the implementation of additional restrictions, 15 credit unions at the end of the fourth quarter did not follow the maximum loan to a single borrower requirement. Some credit unions took measures and presented information to the Bank of Lithuania that in April 2013 they have already been complying with prudential requirements.
On 1 April 2013 there were 75 credit unions in Lithuania, with the total of 144 thousand members. Lithuania’s Central Credit Union comprised of 63 credit unions, of which 12 work independently.
The Bank of Lithuania, till now having provided only summarized data of the credit union sector’s activities, has begun to publish information about the main credit union activity indicators and compliance with prudential requirements.
More information on the activities of credit unions and the Lithuanian Central Credit Union can be found on the Bank of Lithuania website in the Q1 2013 results review (374 KB download icon), Q1 2013 and 2012 summaries of the main indicators of each credit union.