Capital market development would open new saving opportunities for residents and fund-raising facilities for businesses
The Bank of Lithuania is initiating comprehensive solutions designed to facilitate abilities of businesses to attract long-term financing and thus contribute to building the high value-added economy. A well-developed capital market would diversify saving and investment opportunities available to the country’s residents. This was set out in the public consultation on the capital market development measures package launched today.
‘By bringing together a wide range of individual instruments, we expect to create a strong impetus for the qualitative development of the capital market. We aim at designing such instruments as simple and clear as possible for investors, free from excessive restrictions. We believe this would prompt people to be bolder and more proactive in choosing safe long-term savings methods and managing their money more effectively. It would create more alternative financing channels for businesses, especially small and medium-sized enterprises. It is important that innovative companies operating in the country could efficiently attract external financing on the capital market, and specifically, throughout their entire life cycle, i.e. from their start-up to sustainable development,’ says Simonas Krėpšta, Member of the Board of the Bank of Lithuania.
Seeking to identify the main obstacles to the development of the capital market and measures to overcome them, the Bank of Lithuania conducted surveys interviewing financial market participants, investors, lawyers, examined the experience in other countries, savings and investment products available on the market, and took into account the opinion of the European Bank for Reconstruction and Development (EBRD).
‘Development of capital markets in Lithuania and the region is an important goal of this Government. A deeper capital market would allow creating additional funding sources for businesses, especially small and medium-sized enterprises, and provide additional investment opportunities for both individuals and institutional investors. This, in turn, would contribute to the sustainable and balanced growth of the national economy, and increase the competitiveness of Lithuania’s economy, as well as its resilience to shocks,’ says Mindaugas Liutvinskas, Vice-Minister of Finance.
One of the major challenges is associated with excessive requirements or restrictions, that are effective exclusively in Lithuania, and significantly deviate from international practice. The provisions of some legal acts no longer reflect the needs of the market. The other side of the problem is the insufficient variety of financial products traded on the Lithuanian capital market, lack of innovative investment services, the high cost of services, and in particular the high fees charged by intermediaries when compared to those effective in foreign countries. This is in addition to the general lack of knowledge about investing and financial products.
This all amounts to capital market being not very attractive for retail investors and small and medium-sized businesses. To address the above issues the Bank of Lithuania has developed almost 40 measures in seven areas (management and coordination of capital development measures, legal regulation, tax environment, supply of new financial products, stock market activity and infrastructure, measures for financial intermediaries, and financial education). One of the main proposals is to boost participation in stock exchange trading and to broaden the spectrum of financial instruments traded on the exchange. This would enable businesses to raise funds for their operations, while Lithuanian residents could channel their savings into long-term savings and financial instruments while contributing to the financing of local businesses.
Currently, the domestic stock exchange provides trading in shares and bonds, however, initial public offerings (IPOs) are not common, just like investment in Exchange Traded Funds (ETFs), algorithmic trading, robo-advice or portfolio management, an investment account has not yet been created as an instrument.
The development of the Lithuanian capital market would also be boosted by a wider listing of state-owned companies to be traded on the stock exchange. This would increase their access to capital and attract new Lithuanian and foreign investors. In its study conducted in 2021, the World Bank specifically highlighted the potential of this instrument to significantly boost the development of capital markets in the short term
It also aims to level the playing field for investors and companies seeking to raise finance with the situation in the other Baltic States.
The process of drafting the Capital Development Action plan involved consultations with the Ministries of Finance, the Economy and Innovation, the State Tax Inspectorate, the NASDAQ Stock Exchange and the EBRD.
The consultation will extend until 28 February 2022.