Banking sector in Q2: increasing housing loans, slightly reduced deposits and a challenge of fraud attacks
The banking sector operated profitably and the loan portfolio grew during the first half of the year. Housing loans were the main driver. The total flow of deposits diminished somewhat in Q2 but household deposits continued to grow.
“The banking sector continues to grow, the loan portfolio is increasing further and its quality is improving. The business loan portfolio has not reached the level of the previous year yet and housing loans continue to enjoy their popularity. We see that due to objective economic factors business deposits have been shrinking for two consecutive quarters. Although the sector is in good health, it faces operational challenges, such as a fraud incident. We managed to handle it effectively, nevertheless it was a signal to step up the fight against this negative trend, and proof that joining forces is the quickest way to do so,” said Jekaterina Govina, Director of the Financial Market Supervision Service of the Bank of Lithuania.
Based on the data of Q2, the banking sector in Lithuania earned the net profit of €153.1 million. It increased by €25.3 million, or 19.8%, year on year. Eleven banks or foreign bank branches earned a profit, while six banks incurred a loss.
Although household deposits continued to grow rapidly over the quarter, the deposits in other segments dropped. It led to a negative overall result for the quarter (–0.4%), however, compared with the first half of 2020, deposits grew by €5.3 billion, or 19.4%, to €32.5 billion.
Traditionally, household deposits constituted the major part (59%) of total deposits, increasing by €753 million (4.1%) to €19.1 billion over the quarter. In a year, household deposits grew by €3.5 billion, or 22.5%.
The loan portfolio went up by 2.9% to €20.4 billion, increasing by €567 million over the quarter and by €584 million year on year. Banks granted more loans both to businesses and households during the quarter: their portfolios grew by €165 million (2.1%) to €8.1 billion and by €354 million (3.2%) to €11.4 billion, respectively. In fact, the trends vary compared with the first half of 2020: lending to households went up by €882 million, or 8.4%, while crediting to businesses dropped by €370 million, or 4.4%.
Housing loans, which increased by €278 million, or 3.1%, to €9.3 billion in Q2, were the main contributor to the growth of the household loan portfolio. The annual growth accounted for €857 million, or 10.1%. The share of new housing loans for borrowers with already at least one housing loan increased by 3.5 percentage points (to 15.8%). It shows that some buyers potentially make use of bank funding when buying their second housing for investment or leisure purposes.
Both business and household loan portfolio quality improved noticeably. The share of non-performing (so-called “bad”) loans contracted by 0.37 percentage point, to 1.68%, while the outstanding amount of such loans was 15% lower than in the beginning of the quarter.
Bank capital adequacy ratio and the quality of capital instruments remained high. All banks complied with individual prudential requirements set for them, whereas their liquidity situation remains very good. Banking sector assets increased by nearly €920 million (2.4%) to reach €39.2 billion in Q2 2021. The annual change comprised 18.4%, or €6.1 billion.
One of the challenges encountered in the first half of the year was a well-organised fraud attack. By pretending to be employees of one large bank, the fraudsters convinced a number of people to authorise operations beneficial to them. The attack was contained by means of a close cooperation between institutions, which was coordinated by the Centre of Excellence in Anti-Money Laundering.
Currently, twelve banks in the country have a banking or a specialised bank licence; six banks operate as foreign bank branches. The bank Crius LT, UAB has not yet started its operations, however, it plans to do so in the nearest future. Currently, the Bank of Lithuania, together with the European Central Bank (ECB), is examining eleven applications for a specialised bank licence.
Each quarter, the Bank of Lithuania publishes information about each bank's key performance indicators and compliance with prudential requirements on its website. This information is available here.
Banking Activity Review Q2 2021 (in Lithuanian).