Banking sector in the third quarter: rise in loans and deposits despite economic slack
Bank loan portfolio continued to grow as a result of increases in household and business loan portfolios. Household deposits with Lithuanian banks increased at a somewhat slower pace, although the transition of current deposits into time deposits has been accelerating for the third consecutive quarter. Profits of the banking sector continued to grow, and the second solidarity contribution instalment was paid in the third quarter of this year.
“Banking sector trends related to credit, deposit growth and high profitability in the third quarter of the year are in line with our projections and estimates. Despite economic slack, the level of the so-called bad loans remained subdued, and the banking sector operates with strong capital and liquidity buffers and is ready to withstand unexpected shocks. It is important for market participants to pay attention to risks related to information technology and cybersecurity,” says Simonas Krėpšta, Member of the Board of the Bank of Lithuania.
Today, the European Central Bank (ECB) announced the list of directly supervised banks in 2024. Following a proposal of the Bank of Lithuania, Revolut Holdings Europe UAB and Revolut Bank UAB were added to the list. Today Revolut Bank UAB is the third largest bank in Lithuania, accounting for 19.3% of the market share. It should be noted that the majority of its assets are held in various European Union countries and not in Lithuania.
“This is a natural and forecasted sequence of events, taking into account the growth rate of Revolut Bank UAB and the share of non-resident depositors in other European countries,” says Simonas Krėpšta.
Other banks directly supervised by the ECB include Swedbank, AB, AB SEB bankas and AB Šiaulių bankas, accounting for 29.4%, 22.3% and 7.7% respectively of the market share in terms of assets. The Bank of Lithuania will continue to independently supervise these banks in terms of consumer protection, the prevention of money laundering and other aspects Prudential supervision is carried out by a joint supervisory teams of the Bank of Lithuania and the ECB, and relevant decisions are taken by the ECB’s collegial governing bodies, which include representatives of all euro area national supervisory authorities.
At the end of November, banks operating in Lithuania paid an instalment of the temporary solidarity contribution for the third quarter of this year totalling nearly €104 million (€56 million were paid for the second quarter). According to the Bank of Lithuania estimates, the total solidarity contribution for 2023 may amount to around €250 million.
In the three quarters of 2023, the banking sector earned €757.5 million in profits, which is 2.2 times more than in 2022 (€342.9 million). 14 banks and foreign bank branches were profitable, and 4 market participants operated at a loss. The total loss incurred by all market participants which operated at a loss (banks which have recently launched their activities and whose operating expenses are higher than their revenues) amounted to almost €7.4 million.
In the three quarters of 2023, banks’ interest income increased by €1.15 billion (3 times), compared to the corresponding period of the previous year, to €1.7 billion, whereas interest expenses grew by €196 million (2.6 times) to nearly €258 million.
In 2023, deposits (excluding the Revolut Group) grew by €0.6 billion (1.6%) and resident deposits increased by €0.1 billion (0.5%), to stand at €21.4 billion. Since February, when the Bank of Lithuania started publishing interest rates on time deposits offered by banks and credit unions, their popularity has steadily increased. For instance, the share of time deposits held with banks increased from 21% to 25% in the third quarter and almost doubled in the course of nine months (up from 13% at the beginning of 2023). Today banks offer an annual interest from 3.50% to 4.30% on one-year time deposits.
The total loan portfolio grew by €47 million (0.2%) to €26.6 billion during the quarter. Its annual growth comprised €1 billion, or 4.1%.
Loans to households amounted to €14.7 billion at the end of the third quarter. Compared to the second quarter, loans to households granted by banks increased by €356 million (2.5%). Housing and consumer loans grew at a similar pace: housing loans increased by €164 million (to €11.5 billion), while consumer loans grew by €166 million (to €1.9 billion). The household loan portfolio went up by €1.4 billion (10.3%) year on year.
Business loans rose by €416 million (3.9%) to €11.1 billion quarter on quarter. Banks mainly provided loans to companies active in the wholesale and retail sector (the annual growth rate was 16.3%).
The share of non-performing loans decreased by 0.02 percentage points to 0.98%
Banks’ capital adequacy ratio remained high in the third quarter of 2023, going up by 0.1 percentage points to stand at 20% (requirement is 8%). Bank liquidity buffers remained high and above the EU average.
Banks identify risks related to cyber security as one of the biggest operational risks. On the basis of the information provided by the banks, the Bank of Lithuania conducted an assessment in this area. Banks view the risk related to the information and communication technology (ICT) services provided by third parties as the largest information technology (IT) risk and cyber and IT security risks as the second largest risk. According to the Bank of Lithuania, banks should step up their management of IT and related risks at board level, conduct external audits of ICT services more frequently, strengthen IT development management processes and engage more actively in the platform for sharing cyber-related information.
There are currently 18 participants in the banking sector in Lithuania: 13 banks hold banking licences and 5 banks operate as foreign bank branches. Together with the ECB, the Bank of Lithuania is currently assessing one application 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.