2015-03-12
Banks successfully responded to challenges in 2014; the assets and deposits of the banking system posted growth, profits — a drop
Growth in the assets of the domestic banking system was stronger last year and the housing loan portfolio expanded. Growth in deposits, which was recorded throughout the year, strengthened at the end of the year in particular, when cash flooded into banks before the adoption of the euro.
“Last year was a special year for the banking system — huge work has been accomplished in preparation for the euro examination, and it has been successfully passed. The operations of banks last year were characterised by stability. The profits and the loan portfolio of the sector remained at similar levels, loan provision to natural persons intensified, while a leap in deposits never seen in the sector’s history marked the end of the year,” says Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.
The amount of deposits held with banks grew by 18.1 per cent in 2014, reaching a new highest level — EUR 16.3 billion (LTL 56.2 billion). This strong growth in deposits was driven by the aim of the population and enterprises to more simply exchange litas into euro — the cash in accounts was exchanged automatically and free of charge. Over the last quarter of the previous year alone, the amount of residents’ deposits with banks increased by nearly 15 per cent — to EUR 9.8 billion (LTL 33.8 billion).
With banks having directed the bulk of new deposits to their accounts with the central bank, the assets managed by the banking sector grew by 7.4 per cent over the year and stood at EUR 24.1 billion (LTL 83.1 billion) on 1 January 2015. The change in the loan portfolio, which represents the main part of bank assets, was marginal: this portfolio shrank by 0.2 per cent — to EUR 14.7 billion (LTL 50.9 billion).
With the housing market becoming increasingly active, housing loans were distinguished by more significant growth. Their portfolio increased by EUR 55.7 million (LTL 191 million) over the last quarter of 2014 alone — to LTL 5.7 billion. A positive flow of housing loans has been recorded for the seventh consecutive quarter.
While the loan portfolio of private enterprises shrank from EUR 6.8 billion (LTL 23.6 billion) to EUR 6.5 billion (LTL 22.5 billion), it should be noted that this differential was determined mainly by technical reasons, i.e. changes in the rules of consolidation of financial accounts to be presented by banks and in the loan classification methodology: part of the portfolio of private enterprises was assigned to other segments. Should this influence be eliminated, the business loan portfolio would have remained almost unchanged.
According to unaudited data, in 2014 the operations of 6 in 7 banks and of 5 in 8 bank branches were profitable, their profits earned amounted to EUR 213.5 million (LTL 737.1 million). This is 6.2 per cent less than in 2013. Although bank profits from their main activity rose last year, the worse operating performance of the year was significantly affected by an increase of EUR 44.5 million (LTL 153.6 million) in bank expenses related to loan impairment and administrative costs.
All banks last year complied with the established liquidity and capital adequacy ratios with a reserve. The overall bank capital adequacy ratio was 21.3 per cent (the required ratio is 8%), the overall bank liquidity ratio — 43.6 per cent (the required ratio is 30%).
According to V. Vasiliauskas, the banking system will not lack challenges this year either. Joining the single euro payments area (SEPA) from 2016 will complete the euro adoption process. Therefore, banks and economic entities must already now prepare for the implementation of the standards for electronic payments in line with SEPA requirements.
The Bank of Lithuania publishes information about each bank’s major performance indicators and compliance with prudential requirements. Information about foreign bank branches is only revealed on a consolidated basis, since their supervision is the responsibility of a competent authority supervising the bank which has established a branch. For more information on banking activities in 2014 go to the Review (158.5 KB download icon) of Banking Activities, Bank Indicator Summary and Consolidated Indicator Summary, published on the website of the Bank of Lithuania.