2013-01-24
The National Credit Union recognized as insolvent, a decision to withdraw its licence taken
Upon presentation by the National Credit Union’s Administrator of a conclusion that its assets excel its liabilities, the Board of the Bank of Lithuania recognized this credit institution as insolvent. At the same time, a decision was taken to revoke the license for the National Credit Union for good.
During the target inspection by the Bank of Lithuania’s Supervision Service on 16–26 October 2012 it was identified that the National Credit Union performed particularly risky and non-transparent activities threatening the security of the money of its depositors. It was identified that credits were granted without adequately assessing the risk—the reality of the business plans of credited enterprises and the prospects for their implementation were not analysed; it was not checked whether future debtors had submitted the right data, necessary for the assessment of their risk. It was also found that the reports submitted to the Bank of Lithuania did not reflect the NCU’s actual financial state.
Taking into account the recidive breaches of legal acts and the fact that, even after the inspection, this Union proceeded with its risky activities, the Bank of Lithuania removed the NCU’s management, restricted its activities, and appointed a Temporary Administrator, Alvydas Mogenis, to assess the credit union’s financial state and the prospects for its operation.
After carrying out a detailed evaluation of the NCU’s assets, the Temporary Administrator submitted a finding, pointing out that, on 13 December 2012, the net value of the NCU’s assets amounted to LTL 99.1 million; liabilities—LTL 123.4 million; capital—minus LTL 24.3 million, i.e. the net value of the assets was LTL 24.3 million lower than this credit union’s liabilities.
The main reason behind that—large exposures, the majority of which were granted by the NCU in the second half of 2012. During the temporary administration, having applied to the asset valuators of the state enterprise Registrų centras, it was found that the value of the assets pledged against 13 doubtful loans alone was not LTL 58.3 million, as the NCU used to itself declare, but almost 30 times lower—LTL 2.1 million.
Looking for possibilities to prolong the operation of this credit union, the Temporary Administrator addressed the union members, encouraging contribution to the resuming of its activities. Having gotten no proposals from the shareholders and having assessed the prospects for the union’s financial flows as well as other circumstances, the Temporary Administrator presented a conclusion that there were no real possibilities to restore the stability and credibility of this credit union’s operations. At the same time it was proposed to address the issue of the initiation of bankruptcy proceedings against the NCU.
Having taken into consideration the asset evaluation and the findings presented in the Administrator’s report, the Board of the Bank of Lithuania recognized the NCU as insolvent and decided to revoke the licence of this credit union for good. In the near future, an application will be submitted to the Regional Court of Vilnius to institute bankruptcy proceedings against this credit institution.
Under the Law on the Insurance of Deposits and Liabilities to Investors, the application of an enforcement measure because of insolvency is an insured event; therefore insurance compensations will be paid to the depositors of the credit union.
Insurance compensations will be paid and calculated following the procedure approved by the State Enterprise “Indėlių ir investicijų draudimas”. According to this procedure, once an insurance event has occurred, 100 per cent of the deposit amount shall be compensated, not exceeding 100,000 euros (LTL 345,280). The compensation to a customer shall be paid within 20 working days from the date of the insured event—on 24 January 2013 the Council of the State Enterprise “Indėlių ir investicijų draudimas” can prolong the term for the payment of compensations, but for no longer than 10 working days.
For more information on deposit insurance visit the website of the State Enterprise “Indėlių ir investicijų draudimas” or by phone at (8 5) 213 5657.
Until the court takes the decision to institute bankruptcy proceedings, the operations of the NCU will remain restricted and financial services not provided.