Financial Services, Legislation, Lithuania, Loan

"The most recent performance of credit unions confirms how relevant it is for them to accumulate capital, necessary for amortising the generated and likely losses on loan impairment and ensuring stability of operations. Aiming to form sustainable capital, necessary for the safe and sound provision of services, credit unions must use all measures provided for in legal acts," says Vytautas Valvonis, Director of the Supervision Service at the Bank of Lithuania.

The assets of credit unions, according to 1 April 2015 data, amounted to EUR 630.4 million, or 2.8% of the assets of the system of operating banks (2.5% a year ago). Loans granted to members (EUR 262.1 million) represented the largest share of the assets of credit unions (41.6%). Year on year, the loans granted by credit unions boosted by 3.3%; however, in the first quarter of this year the loan portfolio contracted. This contraction of the loan portfolio was driven by an increase in specific provisions: credit unions, in evaluating loan portfolios, revealed a more realistic quality of loans granted.

After investing more in long-term GS (with the maturity of over one year) for several consecutive years, in Q1 2015 credit unions invested more actively in short-term (up to one year) GS of European Union Member States and European Economic Area countries. It is likely that this change was affected by the Bank of Lithuania's actions aimed to mitigate the interest rate risk assumed by credit unions.

The share capital of credit unions, according to 1 April 2015 data, amounted to EUR 52 million, an increase of 3.6% year on year.

47 credit unions, whose operations in Q1 2015 were profitable, earned EUR 3.9 million of profit; 27 credit unions operated at a loss, however, incurring EUR 0.3 million of losses, which reduced the credit unions sector's profit to EUR 3.6 million (in Q1 2014 the operations of credit unions were loss-incurring, with EUR 37.2 thousand of losses incurred).

The Republic of Lithuania Seimas Committee on Budget and Finance has already approved the conception of the sustainable operation of credit unions, presented by the Working Group for the Preparation of a Draft Conception for Sustainable Operation of Credit Unions. In defining it, the Bank of Lithuania's proposed specific measures were taken in account. Legal acts, necessary for the implementation of the systemic reform of the credit unions sector laid down in this conception, are currently being drafted.