On 17 October 2014 the Lithuanian Central Bank presented to the Parliamentary Commission the conclusions drawn from a wider public consultation on the reform of the system of credit unions in Lithuania. Both the formation of the Parliamentary Commission and initiation of the public consultation by the Central Bank came as a response to repeated failure of credit unions (5 credit unions gone insolvent since 2013) with an attempt to introduce legislative changes to strengthen this sector of the financial system.

Though credit unions control only slightly more than 2 percent of assets available in the Lithuanian financial system, their importance has always been in ensuring financial services penetration and accessibility to small and medium enterprises, especially in the regions. According to current regulation, the minimum capital for a credit union is established at almost EUR 145 000, when the credit union does not issue electronic money and at EUR 500 000 when it does. The license for credit union activities is issued by the Central Bank and the requirements to obtain it are less onerous than the ones established for bank license.

Only natural persons, linked to the credit union by geographical location, by profession or the kind of economic activity that it conducts may become members. Legal persons, linked to the members may become associated members. To join the credit union, they must acquire the main share (lit. pajus) and pay in the share contribution. If a member decides to leave the credit union, the share contribution minus accounted loss for respective year is repaid.

The recommendations of the Central Bank to the Parliamentary commission envision creation of a more sustainable capital for the credit unions. Credit unions would have to start accumulating an obligatory reserve, directing there at least 90 percent of profits and adding additional contributions. After a transitional period of 10 years the capital of the credit union shall consist of reserved profits and non-repayable shares, all of which could be used to cover losses of a credit union.

The Central Bank also sought for ways to foster stronger cooperation among the credit unions to enable them to supervise activities of each other and at the same time to act together in order to compete with larger actors in the financial sector – the banks. At the start of the public consultation the idea to establish cooperative banks with credit unions as its members was raised. However in the conclusions the Central Bank found that similar cooperation among credit unions could be achieved through obligatory participation in central credit unions (CCU). CCU would have to prepare consolidated accounts and all members would be liable to cover losses of any other single member. Such system is expected to foster stronger internal controls and reduce reliance on national deposit insurance scheme.

On the basis of these conclusions brought by the Central Bank, the Parliamentary Commission is expected to draft legislative proposals by 3 December 2014.