Bank of Lithuania
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As a result of changes in financing conditions and uncertainty about the outlook for economic growth, the growth of the bank loan portfolio was the lowest over the past two years. The quality of bank lending remained stable, while bank profits and interest income continued to accelerate.

“Against the backdrop of rising interest rates, bank profits have significantly increased, as has been predicted. Another important news is that, as deposit interest rates have started to rise, residents increasingly direct their funds to term deposits,” says Simonas Krėpšta, Member of the Board of the Bank of Lithuania.

The banking sector earned a profit of €258.4 million in the first quarter of 2023, almost 2.6 times more compared to the corresponding period in 2022, when profits amounted to nearly €100 million. 15 banks and foreign bank branches were profitable, and 4 market participants operated at a loss. In the first quarter of 2022, all loss-making market participants incurred a total loss of €4.7 million. Rising interest rates following decisions of the European Central Bank (ECB) continue to have a major impact on bank interest income, which expanded by more than 2.5 times to almost €475 million compared to the same period last year. Interest costs doubled, increasing by €25.1 million to stand at €49.7 million. 

The loan portfolio grew by €101 million (0.4%) to €26.1 billion quarter on quarter. More sluggish growth compared to the previous year was backed by loans to residents which went up by €292 million (2.1%) to €14 billion. Housing loans rose by €165 million (1.5%) to €11.2 billion. Corporate loans declined by €169 million (1.6%) quarter on quarter to stand at €10.6 billion. Loans to large companies operating in administrative and support service, real estate, electricity, gas, steam supply and air-conditioning activities recorded the biggest decrease. Nonetheless, the annual growth remained positive: loans to households increased by 12.6%, of which housing loans went up by 10.6% and corporate loans by 9.8%. 

In contrast to other loans, loans to households for consumptions continued to show robust growth, increasing by €126 million (8.6%) to €1.6 billion. The housing loan segment has historically been dominated by three major Lithuanian banks (occupying 90.5% of the market), while the consumer loan segment has more equal participants. 

There was a decline in deposits in the first quarter of 2023, but credit institutions started to rapidly raise deposit interest rates, which kindled the interest of residents in term deposits. During this period, the current account deposits of residents decreased by €1 billion to €16.8 billion, but term deposits rose by more than €0.5 billion (13.8%) to almost €4.3 billion. The share of current deposits in total deposits declined but is still significant, amounting to 79.6% at the end of the first quarter (in the previous quarter it stood at 82.5%). The share of term deposits is expected to grow further. More on the latest interest rates on term and other deposits is available here.

The share of non-performing (bad) loans remained relatively stable: it increased by 0.1 percentage points to 0.97%. Non-performing corporate loans went up by 0.11 percentage points and accounted for 1.59% (€153 million) of the business loan portfolio, meanwhile those of households grew by 0.05 percentage points and accounted for 0.89% (€123.7 million) of loans to residents. 

Banks operating in Lithuania had no direct links with two US banks which collapsed in the first quarter and with Credit Suisse, the Swiss bank which faced difficulties. Thus these events had no effect on their liquidity. The Lithuanian banking sector is well prepared for possible challenges – banks comply with the prudential standards set for them. Banks’ capital adequacy ratio remained high in the first quarter of 2023, with liquidity levels 4 times higher than the prescribed minimum. 

Currently, 13 banks in Lithuania have a banking or specialised bank licence and 6 banks operate as foreign bank branches. The Bank of Lithuania, in cooperation with the European Central Bank, is examining 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.

Banking sector: term deposits and profits grew, the quality of loans remained stable