2013-08-13
The prudential measures for credit unions, which have come into effect, started to give results
Stricter prudential requirements for the operations of credit unions came into effect this year, and the enforcement measures applied to certain credit unions decreased irresponsible crediting by the credit unions and helped ensure more sustainable development of the whole sector. Nevertheless, in some credit unions, risk isn’t managed conservatively enough.
The assets of credit unions in the second quarter of 2013 almost did not change, and on 1 July amounted to LTL 2 billion. The bulk of the credit unions’ assets were made up of the loan portfolio, which in the same period grew by 0.8 per cent — to LTL 1.06 billion.
In the reporting quarter credit unions extended more loans to individuals; however the loan portfolio extended to legal persons (associated members) decreased. This was the result of the differentiated capital adequacy ratio that came into effect: stricter requirements were laid down for unions the bulk of whose loan portfolio was made up of loans extended to associated members. The requirements were tightened because the loans extended to associated members in particular recently were the greatest source of unfounded credit risk.
“Although risky lending decreased, some credit unions still do not conservatively enough assess the loan pay back opportunities, therefore at present a lot of attention should be paid to the management of this particular risk,” said Vytautas Valvonis, Director of the Bank of Lithuania’s Supervisory Authority.
The Bank of Lithuania, with the goal of making credit unions assess their assumed risks more conservatively, this year approved rules that regulate loan assessment and the forming of specific provisions. In addition it prepared the Provisions for the Organisation of Internal Control and Risk Management.
On 1 April, when stricter capital adequacy and liquidity requirements came into effect, the liquidity indicators of three credit unions, the bulk of whose portfolio is made up of loans extended to associated members, capital adequacy indicators and two credit unions, the deposit growth rates of which exceeded sustained growth rates, were less than required. In addition, on the reporting date seven credit unions 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 on July 2013 they were already complying with prudential requirements, while several were given terms until which they were obligated to comply with the requirements.
From the beginning of the year, 47 credit unions earned an LTL 6.4 million profit; however 27 credit unions operated at a loss and experienced an LTL 13.7 loss. This resulted in the sector’s losses to amount to LTL 7.3 million — almost three times more than last year in the same period.
The Central Credit Union of Lithuania, uniting 63 credit unions, in the first half-year earned a profit of LTL 953 thousand (in 2012 in the same period — LTL 463 thousand) .
More information is available in the Q2 2013 Review (323.7 KB download icon) of the Operations of Credit Unions and the Central Credit Union of Lithuania.