To Accumulate Sustainable Capital
OREANDA-NEWS. In Q2 2016, compared to Q1, the credit union loan portfolio increased by almost a tenth. The growth of the loan portfolio was driven by consistently increasing crediting of natural persons. Nine credit unions were the most active, granting loans designated for consumption, housing, agriculture, acquisition of immovable and movable property or other purposes.
‘The credit sector saw its crediting grow, which is good news. However, this does not alleviate our concerns over the fact that the increasing volumes of non-performing loans and expenses of the oversight and sale of assets taken over for debts, which are not usually used for the needs of credit unions, may dampen the financial situation of credit unions in the future. In order to accumulate sustainable capital, ensuring stable operations, credit unions have to improve their operating results significantly, i.e. increase income, decrease expenses, and seek additional sustainable capital sources’, said Vytautas Valvonis, Director of the Supervision Service at the Bank of Lithuania.
Valvonis noted that, in complying with requirements set by the Bank of Lithuania, credit unions reduced securities portfolios and changed their composition according to maturity. Over the reporting quarter, credit union security investments dropped by almost EUR 31 million. As at 1 July 2016, more than a fifth of credit union assets (EUR 142.7 million) consisted of investments in debt securities.
According to the data as of 1 July 2016, loans granted to members (EUR 321.7 million) accounted for 50 per cent of the credit union assets. In Q2 2016, the loan portfolio of credit unions increased by EUR 28.7 million, the volumes of non-performing loans — by EUR 5.8 million.
In Q2 of this year credit union assets shrank by 13.6 million and, according to data as of 1 July 2016, amounted to EUR 643.3 million or 2.7 per cent of the banking system’s assets (2.8% a year ago). The decrease in assets was driven by the fact that in Q2, as in Q1, the deposit portfolio continued on its downward path as credit unions continued to cut their deposit rates.
Accepted deposits remained the major funding source for credit unions — nearly 88 per cent of credit union assets were financed with them. In Q2 of this year, the deposit portfolio contracted by almost EUR 17 million, or 2.9 per cent, amounting to EUR 563.9 million on 1 July. The seasonality of agricultural works had a considerable impact on the decline in the deposit portfolio, as the most significant decrease in deposits was seen in credit unions uniting farmers
In the first half year of 2016, 42 credit unions, whose operations were profitable, earned EUR 2.6 million in profit; however, 32 credit unions operated at a loss. A loss of EUR 2.3 million incurred by them reduced the profit of the sector to EUR 0.3 million(in the first half year of 2015 profit earned totalled EUR 0.1 million).
As of 1 July 2016, 74 credit unions were in operation. They united 160.5 thousand members (in Q2 2016, the membership increased by 1.6 thousand, whereas as of 1 July 2015 — by almost 7 thousand).Currently 61 credit unions are members of the Lithuanian Central Credit Union, while 13 credit unions operate independently.