2014-02-18
Despite a low interest rate environment, the deposits of individuals and businesses with domestic banks at the end of 2013 hit an all-time record. The portfolio of loans extended by banks last year remained almost unchanged, their assets and profits recorded an increase.
“The end of the last year is marked by a record in deposits, which was driven mainly by a significant increase in the amount of deposits of private persons. Most of the other performance indicators of the banking sector last year improved moderately or remained at similar levels, except for the continued decline in interest income,” said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania, in summing up last year’s banking performance.
According to him, the improving economic situation in the country and the financial condition of households, as well as the record amount of workers’ remittances from abroad — LTL 4.9 billion — contributed to growth in deposits.
As of 1 January 2014, deposits with banks in Lithuania amounted to LTL 47.6 billion. With banks not increasing interest rates on time deposits, depositors tended to keep their funds in current accounts. The amount of deposits in such accounts increased significantly in recent years and their share already exceeds 60 per cent of total deposits.
The assets managed by the banking sector grew by LTL 2.3 billion, or 3 per cent over the year, to LTL 77.6 billion as of 1 January 2014. The loan portfolio, with its largest asset share, grew moderately though — by just 0.4 per cent (to LTL 51 billion). Nevertheless, the housing loan portfolio recorded annual growth last year, for the first time since 2008. Housing loans increased by LTL 128.7 million over the year, to LTL 19.4 billion at the end of 2013.
The profits earned by banks and foreign bank branches in 2013 amounted to LTL 785.5 million — an increase of LTL 70.3 million, or nearly one-tenth from 2012. However, excluding one-off contributions, the growth would amount to 1.6 per cent. Last year the activities of six banks and six foreign bank branches were profitable, while one bank and two foreign bank branches operated at a loss. Banks have been operating profitably for the last three years; however their profits earned over this period (LTL 2.7 billion) did not offset their losses incurred in 2008–2009 (LTL 3.9 billion).
Net interest income — the most significant income for banks — has been declining for several consecutive years already. With the loan portfolio remaining basically unchanged, banks’ interest income from their loan portfolio contracted by as much as LTL 406.6 million (16.7%). Only cutting of interest income by LTL 390.3 million helped prevent a fairly significant decline in net interest income. However, as the banks’ interest payable on liabilities dropped to the historically lowest level of 1.19 per cent, the possibilities for cutting current interest expenditure have been almost exhausted.
“We do not project abrupt financial sector changes this year; the adoption of the euro, however, has undoubtedly been a major future challenge for banks. Seeking a smooth changeover to the new currency, particularly thorough preparations are necessary, which banks have already embarked on,” said V. Vasiliauskas.
As of 1 January 2014, all banks complied with the established prudential requirements: the capital adequacy of the banking system accounted for 17.6 per cent, an increase of nearly 2 percentage points from a year ago. The liquidity ratio as of 1 January 2014 was 41.2 per cent — more than 10 percentage points above the requirement.
The Bank of Lithuania has been publishing since 2013 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 institution supervising the bank which has established a branch. For more information about banking activities go to the review of banking activities in 2013 and the 2013 summary of bank indicators (72.7 KB download icon) published on the website of the Bank of Lithuania.