While undergoing structural change, the credit union sector is improving financial health
The reformed credit union sector has boosted its financial results, having earned €3.3 million over the nine months of 2018 (the loss incurred in the same period last year stood at €2.5 million). As the number of credit union members increased and they brought in additional shares, in the third quarter of 2018 the share capital grew by 2.7% (to €48.8 million).
“Profitability of credit union activities was driven by growth in net interest income, which was underpinned by stronger lending activity and significantly decreased operating costs. The improving health of the currently restructuring sector is also evident from growth in sustainable shares. We have to continue on this path and further strengthen capital to overcome future challenges,” said Vytautas Valvonis, Director of the Supervision Service at the Bank of Lithuania.
While growth in the loan portfolio and decreasing specific provisions have had a positive impact on indicators defining the quality of loans within the credit union sector, the share of loans, whose debt obligations are overdue for more than 60 consecutive days, in the loan portfolio of some credit unions increased. Therefore, looking ahead these credit unions may incur losses related to loan value impairment, which will have a negative impact on their capital.
Sustainable shares of credit unions, which are used for covering losses incurred by a credit union, rose by 5.5% during the reporting period (to €43.0 million), to account for nearly 88% of the share capital.
In the third quarter of 2018, credit union assets grew by 4.8% and amounted to €710.8 million, or 2.6% of the banking system’s assets (a year ago – 2.5%). This was driven by growth in sight deposits with credit unions uniting farmers after members of credit unions started receiving funds from agricultural output sold, and by the rise in time deposits with credit unions operating in the country’s largest cities.
Accepted deposits remained the main funding source for credit unions, with which they financed 86% of their assets. As members of credit unions started receiving funds from agricultural output sold, in the third quarter of 2018 their accepted deposits expanded by €25.8 million (4.4%) and amounted to €608.4 million on 1 October 2018.
50 credit unions that operated at a profit earned €4.1 million, while 16 credit unions incurred a €0.8 million loss.