Countercyclical capital buffer requirement of 0.5% remains effective; banks will have to meet it from the end of this year
By the end of this year, banks in Lithuania must have accumulated required capital buffers to meet the requirement of the Bank of Lithuania to form a counter-cyclical capital buffer (CCB) of 0.5%. The CCB rate was historically first raised in Lithuania at the end of 2017 and will become effective on 31 December 2018. Today, the Board of the Bank of Lithuania left unchanged the previously set CCB rate of 0.5%.
‘No financial system imbalances have built up at present; however, the time is right for accumulating buffers to ensure the resilience of the financial system, as the domestic economy has been growing, the financial cycle strengthening, and crediting is active, while profitability within the banking sector is high. If such trends persist, there will be enough preconditions to revise and increase the CCB rate in the second half of the year,’ said Tomas Garbaravičius, Member of the Board of the Bank of Lithuania.
According to him, in times of limited emergence of risk, when credit and RE market activity is high, the domestic economy is growing and credit institutions post high profitability, the aim should be to have accumulated a CCB of at least 1%. Hence, if the economic expansion and crediting trends do not moderate significantly in the near future, in the second half of 2018 the CCB rate could be set at 1%.
The portfolio of loans to the private non-financial sector in Lithuania continued swelling in 2017. Growth in the housing loan portfolio accelerated in 2017, to over 8% at the end of the year, while the influence of credit on the housing market continued to be significant.
Activity within the housing market has been stabilising, while price growth moderating. For example, according to Statistics Lithuania, growth in housing prices in the country stood at 6.9% in the last quarter of 2017 (in the third quarter – 8.5%).