2022-09-19
Banking sector: lending to households and businesses grew despite challenges in the first half of the year
In the first half of this year, commercial banks operating in Lithuania dealt with the impact of inflation and geopolitical factors on the economy, implementation of international sanctions and cybersecurity challenges. Nevertheless, they were active in lending to households and businesses and generated the most income from this activity.
“Banks are duly prepared to face the unexpected, are taking the situation seriously and should continue to strengthen their capital in view of the risks associated with economic uncertainty. It is also important to closely monitor the quality of loans,” says Simonas Krėpšta, Member of the Board of the Bank of Lithuania.
The reorganisation and consolidation of the Revolut Group had a significant impact on the banking sector’s performance (assets, deposits and other indicators). This was a one-off factor, so the data below are presented net of this impact.
The earnings of banks stood at €183.9 million, an increase of €30.8 million, or one fifth, compared to the first half of last year. 14 banks and foreign bank branches operated at a profit and only 3 market participants incurred a loss. Net interest income increased by €61.4 million, or 24.3% year-on-year, while net service and commission income rose by €12.7 million, or 10.6%.
The total loan portfolio grew by €854 million (3.7%) to €24.2 billion during the quarter. Over the year, loans granted increased by €3.7 billion, or 18.3%. The quality of the loan portfolio has remained broadly unchanged. The share of non-performing loans to businesses decreased by 0.2 percentage point to 1.7%, while that of households increased by 0.1 percentage point to 1.0%.
During the third quarter, loans to households increased by €469 million (3.8%) to €12.9 billion (almost €1.5 billion, or 12.7%, year-on-year). The housing loan portfolio increased by €307 million (3.0%) to €10.4 billion during the quarter, while the consumer loan portfolio increased by €116 million (10.2%) to €1.2 billion (by €1.1 billion, or 12.7%, and €280 million, or 29.1%, year-on-year respectively).
Business lending also increased, with an annual portfolio growth of almost €1.9 billion, or 23.3%, but the quarterly growth rate was the lowest of the year, with the portfolio increasing by €295 million (3.1%) to €10 billion during the period concerned. The most active lending during the second quarter of this year was to companies operating in the real estate activities and construction and manufacturing sectors.
Household deposits in banks increased by €356 million (1.8%) during the quarter. In contrast, deposits of businesses fell by €227 million (2.4%) over the quarter due to the demand for funds for working capital (coupled with the impact of inflation) and investment. This led to the overall negative result as deposits fell by €0.1 billion, or 0.3%, during the quarter.
All banks complied with prudential requirements. The capital adequacy ratio of banks remained high at 21.3% (the minimum requirement is 8%) and the liquidity coverage ratio stood at 348% (the minimum requirement is 100%).
Two waves of cyber-attacks against banks as well as some isolated incidents were recorded. The most common type of attacks was a distributed denial of service attack (DDOS), which attempts to overload bank systems with fake queries. Although short-term service disruptions could not be completely avoided, banks quickly restored service availability.
Currently, 13 banks in Lithuania have a banking or specialised bank licence and 6 banks operate as branches of foreign banks. The Bank of Lithuania, in cooperation with the European Central Bank, is examining two 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.
Read the full Banking Activity Review (2022/Q2)
