As the banks switch into higher gear, they should not forget to fasten safety belts

According to the financial statements presented to the Bank of Lithuania, asserts of the domestic banking system grew by LTL 1.8 billion (2.2%), i.e. to LTL 83.2 billion.   

For the first time after two years and a half, over the quarter, the banks granted to clients more new loans compared to the repaid loans. Over three quarters of this year, the banks granted LTL 8.4 billion of new loans i.e. LTL 1.7 billion more year-on-year. However, the flow of repaid loans still exceeded the flow of newly granted loans, therefore, total loan portfolio decreased over the said period. Still, the amount of loan portfolio grew by LTL 806.6 million (1.4%), i.e. to LTL 57.7 billion. As the amount of loans granted to natural persons broadly stays at the same level, the overall growth of the portfolio was largely determined by the decreased amount to private enterprises which grew by LTL 340 million or by 1.3% (to LTL 27.4 billion).

“The banks are turning on the loan tap. After a rather long interval, their lending became more generous for private enterprises which create new working places. That helps to unfreeze the real economy, still, the situation in international markets could not be ignored. As they switch on to the higher gear, both banks and their clients must check whether their safety bells are fastened, which would be a safety buffer in case of the potential shocks", the Chairman of the Board of the Bank of Lithuania Vitas Vasiliauskas said.

In the third quarter, commercial banks of the country, having assessed the uncertainty in the international markets, increased their liquidity and complied with the liquidity ratio established by the Bank of Lithuania. The banks held adequate liquidity buffers to cover the liquidity gap. According to official accounts, the banks also complied with the capital adequacy ratio.

During nine months of this year, the banks earned LTL 707.2 million profit, LTL 193.7 million of which were earned in the third quarter. At the same date of the last year, the banks had incurred a LTL 363.9 million loss. That quarter was the fifth consecutive profitable quarter in the banking system. However, it should be noted that, compared to the first and second quarters, the profit was lower by one fifth due to interrupted slow down of the costs of the decline of asset value. The most important factor supporting the quarterly profit was the growing net interest income. That was mostly influenced not by the recovery of lending but by decreasing bank interest rates expenditure for the “raw” money (deposits, etc.).

In the third quarter, deposits in banks reached new heights, their amount held with banks grew by more than LTL 1 billion (2.3%), i.e to LTL 45.8 billion. The annual grow rate was 6.6%. The most rapid growth – LTL 952.2 million (7.4%) – was due to private deposits increased by private enterprises. The amount of the deposits of residents, compared to the previous quarter, remained broadly unchanged and stood at LTL 26.7 billion     ­                                                                                  

In the third quarter, however, grew the number of clients who decided to acquire riskier products distributed by credit institutions, unsecured by the state i.e. bank bonds, etc. The amount of such liabilities to clients grew by LTL 358 million (24.5%) – to LTL 1.8 billion.  

“We hope that the clients study closely terms and conditions of the products they intend to acquire and consciously take the risk”, Vitas Vasiliauskas said. As Mr Chairman emphasised, it should be kept in mind that, striving to achieve higher interest income and choosing a product unsecured by the state, the banks should also take higher risk.