Reform for credit unions

The Lithuanian Central Credit Union, bringing together 80% of the Lithuanian credit unions, and the Association of Lithuanian Credit Unions welcome planned sector reform and pursue changes in the Lithuanian credit union sector.

“The reform will give credit unions and the entire credit union sector a thicker capital cushion and thus, provide more financial stability. With closer integration of the entire sector, credit unions will have all means to become a stronger competitor to banks dominating in the credit market, while greater competition will bring benefits primarily to consumers,” said Marius Jurgilas, member of the Board of the Bank of Lithuania.

According to Ramūnas Stonkus, Chairman of the Board of the Association of Lithuanian Credit Unions, bringing together 58 credit unions, the planned changes would also create more favourable conditions for credit unions to lend to people, including small and medium-sized businesses, and it would give more stability to the union system and improve competition in the banking market.

Based on draft legislation, every union operating in the market will have to become a member of a Central Credit Union. Credit unions will focus on their main functions: lending, collection of deposits and provision of financial services, while secondary activities will be optimised at Central Credit Unions. Credit unions, as members of Central Credit Unions, will also participate in unified solvency systems.

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“This change will not only be beneficial to unions as such, but also to their clients and the state. It will reduce the risk of other credit institutions experiencing difficulties when one of them is facing financial problems. Meanwhile, clients, knowing that unions are part of a unified system, will be able to put their complete trust in them. In this way, unions will become a trustworthy partner in economic growth financing,” said Fortunatas Dirginčius, CEO of the LCCU.

Draft legislation provides for a 10-year transitional period to strengthen union capital. During this period, contributions of credit unions to the compulsory reserve will not be lower than 90% of their profits, while sustainable capital will be at least 90% of the total capital of the union.

According to Dirginčius, Chairman of the Board of the Lithuanian Central Credit Union, despite the 10-year transitional period, unions must already attract the sustainable capital required for stable operations. “It is one of the most important tasks of the unions operating in the LCCU system. Consolidated sustainable capital and economies of scale will enable unions participating in the unified solvency system to significantly expand their lending options.”

Amendments to the law also aim at reinforcing self-regulation of the credit union sector. Based on them, Central Credit Unions will have effective functions for controlling and supervising individual unions and will be able to set individual requirements for their unions. Stonkus, CEO of the Association of Lithuanian Credit Unions, believes that such reinforcement of Central Credit Unions will lead to closer and more effective supervision.

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The Lithuanian Parliament is expected to approve the reform of credit unions in spring. With the new legislation in force, the asset quality assessment for all credit unions should be carried out by November. This task will be performed by independent assessors in accordance with the procedure approved by the Board of the Bank of Lithuania. After the new amendments to the law take effect in November, unions with a positive asset quality assessment will be able to join Central Credit Unions. Other unions will only be able to join Central Credit Unions after they have strengthened their capital

or other relevant indicators. All unions will need to have an appropriate amount of sustainable capital by 1 January 2028.

The LCCU performance indicators for 2015

Key performance indicators of the LCCU system of 61 credit unions Key performance indicators of the LCCU
Indicator Year 2015 Indicator Year 2015
Credit unions members 137,259 LCCU system member – credit unions 61
Capital, EUR 42,415,300 Capital, EUR 7,608,607
Deposits, EUR 384,857,750 Deposits, EUR 121,345,834
Loans, EUR 208,360,990 Loans, EUR 16,374,152
Assets, EUR 439,866,000 Assets, EUR 137,693,371

 

For more about LCCU performance indicators and the reform click here