Bank lending highest over the last seven years

The loan portfolio of banks operating in Lithuania and foreign bank branches increased by 3.9 per cent and reached EUR 16.3 billion. This is the highest growth rate of lending since 2008; however, banks have to prepare for new challenges that may arise in the future.

‘After the temporary upsurges recorded over recent years, 2015 is the year when bank lending returned to the path of sustainable growth. Banks increased lending to businesses and residents as well, especially for house purchase’, said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.

 
  Photo by A. Ufartas (BFL) 

According to him, the development of the credit market is currently sustainable; however, the situation is constantly closely monitored by the Bank of Lithuania, and, if necessary, additional actions to ensure financial stability, preventing the overheating of the market, will be taken.

According to V. Vasiliauskas, the recovery of lending is driven by the stable economic environment, the trust of businesses and residents, as well as the record-low interest rates.

At the end of 2015, the total value of bank loans amounted to EUR 16.3 billion and was 3.9 per cent larger than a year ago. The value of credits extended to businesses increased by 4.5 per cent, to EUR 7.7 billion; the percentage of loans to households rose by 6.9 per cent. The value of loans extended to households reached EUR 7.5 billion; the value of loans for house purchase alone increased by 5.2 per cent — to EUR 6 billion.

The total assets of the banking system changed insignificantly: over the year, it decreased by 2.9 per cent and amounted to EUR 23.4 billion on 1 January 2016.

Despite a low interest rate environment, the number of deposits with banks increased and hit a record this year. At the end of 2015, the amount of deposits with banks was EUR 17.1 billion, i.e., EUR 783 million or 4.8 per cent more than last year. Since there is no essential difference between the interest rates on deposits of different maturities, most of the deposits (75%) are held not as fixed-term deposits, as before, but in current accounts.

In 2015, the Lithuanian banking system was profitable: according to unaudited data, banks and foreign bank branches last year earned EUR 215.3 million in net profit, an increase of EUR 1.9 million (0.9%) from the previous period. However, the major sources of bank income — net interest income (decreased by EUR 9.9 million, –2.6%) and net income from fees and commissions (decreased by EUR 19.8 million, –10.2%) continued to deplete. Only the even more diminished administrative expenses (decreased by EUR 40.9 million or 12.2%) helped banks maintain their profit at similar levels as in the previous year.

All banks not only complied with the minimum capital adequacy requirement of 8 per cent but also with the 2.5 per cent capital conservation buffer, introduced in 2015, and the capital requirements established individually for all banks. The overall capital adequacy ratio of banks increased by 3.5 p.p. — to 24.8 per cent.

According to V. Vasiliauskas, due to regulatory changes that are useful to residents, this year is also important for banks. One of the most significant of these changes is, through the implementation of the Directive on Current Accounts, the projected limiting of the prices of key payment services. The Bank of Lithuania already compiled the basket of key payment services; the total price of all services in it cannot exceed the limit established by the Bank of Lithuania. It is planned that the basket will include 10 electronic transfers, unlimited debiting of funds, withdrawal of at least EUR 550, unlimited debiting of cash, as well as issuance of a bank card, its administration, issuance of a means of e-banking login.

This year it is also planned to increase the protection of users of housing loans. After the implementation of the requirements of the Directive on Housing Loans, it is proposed to obligate the banks to provide easily comparable information according to a uniform and clear template for borrowers, to forbid demand from consumers to purchase financial services unrelated to the housing loan, to create more favourable conditions to repay the loan ahead of time. Banks will also not be able to transfer the risk of real estate prices to users; they will be forbidden to require users to additionally pledge real estate if it impairs through no fault of their own.

The Bank of Lithuania publishes information about each bank’s major performance indicators and compliance with prudential requirements. Information about foreign bank branches is only revealed on a consolidated basis, since their supervision is the responsibility of a competent authority supervising banks that have established a branch. For more information on banking activities in 2015 go to the Review of Banking Activities (303.9 KB download icon), the bank indicator summary and the consolidated indicator summary, published on the website of the Bank of Lithuania.