Bank customers hold most of their funds, deposited before the euro adoption, on accounts

“Following a record inflow of deposited funds, faced by banks at the end of the previous year, in the first quarter of the current year, a little outflow of deposits was recorded; however, the total amount of deposits has still been well above the values recorded in the first half of the last year. It seems that customers have taken into account security benefits and choose banks as an alternative for saving cash at home,” says Vytautas Valvonis, Director of the Supervision Service of the Bank of Lithuania.

As of 1 April 2015, the customers’ holdings of deposits with banks amounted to EUR 15.9 billion. It is only 2.2 per cent (EUR 359 million) less than at the end of 2014, when, with the changeover approaching, in the fourth quarter alone, the amount of deposits picked up by EUR 1.7 billion to reach the highest ever level of deposits with banks (EUR 16.3 billion).

The assets of banks in the country amounted to EUR 22.6 billion at the end of the first quarter of 2015, a decline of EUR 1.5 billion (6.2%) quarter on quarter. Year on year the assets of the banking system increased by EUR 58 million (0.3%). The decline in bank assets was due to a decline of EUR 3.54 billion in the amount of cash and funds held with the central bank. Part of this amount no longer belongs to the banking system; however, banks have allocated slightly more than EUR 2 billion to other asset items.

At the end of the first quarter of 2015 banks had granted to their customers EUR 88 million (0.6%) per cent more loans quarter on quarter, while their total loan portfolio amounted to EUR 14.8 billion.

“Despite the record-low interest rates, the change in the loan portfolio remained minor, yet positive. Lending increased both to business and natural persons. The favourable state of the economy and banks’ prudent lending determined sound indicators of the loan portfolio,” said V. Valvonis.

The loan portfolio of natural persons increased by EUR 23 million (0.3%) over the first three months of 2015 — to EUR 7.0 billion. More than half of this increment consisted of housing loans; their amount grew by EUR 13 million (0.2%) over the first quarter to stand at EUR 5.7 billion. The amount of loans granted to businesses was EUR 6.6 billion, an increase of 1 per cent over the first quarter.

The profits earned by banks operating in Lithuania and foreign bank branches in the first quarter of 2015 amounted to EUR 56.8 million, an increase of 7 per cent year on year, although the performance of the major sources of income — net interest income and income from fees and commissions — was worse. The income from fees and commissions contracted by almost a fifth over the first quarter — to EUR 8.7 million. This change was also driven by the loss of income from currency exchange and much cheaper transfers in euro, the price of which fell to the level of domestic transfers.

Banks’ net interest income fell by EUR 5 million (6%) from the first quarter of 2014,   because of the impact of the ultra-low interest  environment. The 3 month euro interbank offered rate EURIBOR crossed the zero per cent threshold in April 2015, while the 6 month ratio is very close to zero.

The major impact on the total change in the profit of the banking system stemmed from one system participant, whose operating performance was driven mainly by technical reasons.

In the first quarter of 2015, 7 banks and 8 foreign bank branches operated in Lithuania. All of them complied with all established requirements. The overall capital adequacy ratio, as of 1 April 2015, was 22.19 per cent (the requirement is 8%), an increase from the previous quarter (21.29%). With banks holding sufficiently large reserves of liquid assets, the established ratios, in the first quarter of 2015, were complied with a sufficiently high reserve.

Supervision of financial market participants, Banks, Euro adoption