2024-08-08
Banking sector in the first quarter: increase of €646 million in loans and a solidarity contribution of €83 million to strengthen defence
In the first quarter of 2024, banks earned net profits similar to those during the same period of 2023, and lending to both households and businesses continued to grow. The banking sector remains well equipped to face challenges, but the quality of loans has deteriorated somewhat.
“The banking sector was rather active in crediting Lithuania’s economy and, by maintaining high profitability, contributed to the financing of defence. While the growth of non-performing loans has been kept to a minimum, we are closely monitoring this area and encourage banks to pay due attention. The number of time deposits continued to rise, but residents are still not making full use of the favourable conditions, and interest rates are starting to decrease gradually,” said Simonas Krėpšta, Member of the Board of Lietuvos bankas.
In the first quarter of 2024, Lithuania’s banking sector earned a net profit of €260.3 million, nearly €2 million (or 1%) more than in 2023 (€258.4 million). 14 financial market participants were profitable and 4 operated at a loss. The latter incurred a total loss of €3.3 million. According to provisional data, the solidarity contributions paid for the first quarter of 2024 totalled around €83 million. The solidarity contribution for 2024 is projected to amount to approximately €240 million.
Banks’ interest income increased by €293 million (more than 60%) compared to the first quarter of 2023 to €767 million. Interest expenses rose by €148 million (almost four times) to €198 million. Net interest income expanded by nearly €145 million (34%) to €569 million.
In the first quarter of 2024, all deposits increased by €0.6 billion (1.3%) to €51.4 billion, but, after eliminating the Revolut Group’s (mainly active in other European Union countries) impact, they fell by nearly €0.2 billion (0.5%).
In the first quarter of 2024, household time deposits grew by almost €460 million (or 5.9%) to €8.2 billion, and their share increased from 33.6% to 36.3% of household deposits (excluding the Revolut Group since all of its deposits are current).
In the first quarter of 2024, the bank loan portfolio increased by €646 million (2.3%) compared to the fourth quarter of 2023 and amounted to €28.1 billion. Loans to households, which constituted the bulk of the portfolio (43.3%), grew by €278 million (1.9%) to €15.3 billion. The housing loan portfolio increased by €140 million (1.2%) to €11.8 billion, while consumer loans increased by €179.9 million (8.7%) to stand at €2.2 billion.
In the housing loan segment, the share of the three major lenders continued to shrink slightly (down by 0.3 percentage points over the quarter) to 89.3%, while lending for consumption continued to be dominated by banks specialising in this segment.
Loans to non-financial corporations, which accounted for one third of the total portfolio, rose by €175.4 million (1.6%) in the first quarter of 2024 to €11.4 billion, while their annual growth stood at €806 million (7.6%). The bulk of the loans were granted to companies engaged in real estate operations and construction, while lending to merchants contracted.
The quality of the loan portfolio deteriorated slightly over the quarter. The share of non-performing (bad) loans went up by 0.05 percentage points to 1.06%, and their book value was €27.9 million (8.4%) higher than at the beginning of the year. The volume of corporate non-performing loans increased by €17.3 million to €166.4 million (1.6% of commercial loans), while household non-performing loans grew by €10.6 million to €194.6 million (1.3% of household loans).
Banking sector liquidity remained exceptionally high in the first quarter of 2024, with all banks meeting the requirements with a margin. The liquidity coverage ratio (LCR) stood at 405% and was four times above the required minimum of 100%, while the net stable funding ratio (NSFR) stood at 194%, almost twice the required minimum of 100 %. Banks remained well capitalised: the sector’s capital adequacy ratio stood at 20.53% (the benchmark is 8%).
No cyber incidents were recorded in the banking sector in the first quarter of 2024. Banks are continuing their preparations for the implementation of the Digital Operational Resilience Act (DORA) requirements and further strengthening the security and resilience of their IT systems against cyber threats. The DORA Regulation aims to increase the digital operational resilience of the European Union (EU) financial sector by strengthening the ICT and third-country risk management and incident reporting systems of financial entities.
At present, there are 18 commercial banks, including 5 foreign bank branches operating in Lithuania. Lietuvos bankas, together with the European Central Bank, is currently examining one application for a specialised bank licence.
Quarterly information about each bank’s key performance indicators and compliance with prudential requirements is available on Lietuvos bankas’ website.