2016-11-03
Banking survey: Loan portfolio to continue growing, but slower than previously expected
The latest survey of banks operating in Lithuania shows that, in the third quarter, they lent to businesses more actively and for longer terms. Banks did not, in essence, change the conditions for residents’ borrowing for house purchase and do not intend to do so in the near future.
‘In the context of strong credit growth, most banks did not change their credit standards; however, signs of moderating credit to businesses have been observed for a few consecutive quarters. Banks believe that their loan portfolio will continue to expand, but their expectations are becoming more reasonable and portfolio expansion is expected to be weaker than expected at the beginning of the year. Thus, banks see increasingly less room for maintaining the currently high enough credit velocity,’ says Andrius Škarnulis, Head of the Macroprudential Analysis Division at the Bank of Lithuania.
According to him, in the fourth quarter, competition is likely to increase mainly due to manufacturing and crediting of businesses engaged in trading. So far, banks mainly competed in lending to distribution businesses — this sector is among those where the financial situation was assessed by banks as being the best, while lending to it was not restricted by any single bank.
Nevertheless, banks did not credit every business. Most of the surveyed banks (four out of ten) reported having limited lending to real estate businesses. They also credited more cautiously businesses engaged in hotel and restaurant, as well as construction activities (three out of ten banks claimed having limited lending to those sectors).
According to Škarnulis, the aim of businesses to satisfy the growing demand for investment and the aggregate low level of interest rates have contributed to growth in the demand for business loans.
The results of the survey suggest growth in household demand for consumer loans, which was driven not only by high consumer confidence and low interest rates, but intensified acquisition of durable goods such as motor vehicles or household appliances. Banks believe that favourable housing market prospects and a low level of interest rates mainly encouraged households to borrow for house purchase.
Compared to the survey conducted at the beginning of the year, banks’ expectations over housing price increases remained basically unchanged: seven out of ten surveyed banks reported they expected a new increase in housing prices of up to 10 per cent in the years to come. Price increases of old construction housing and commercial premises are likely to be less robust.
For more information on credit standards and conditions applied by banks, contributions to their developments, and bank expectations, go to the latest Bank Lending Survey (1005.8 KB download icon). The Bank of Lithuania conducts such surveys on a biannual basis.