Despite pressure from low interest rate environment, banks increase net interest income amount

‘In the first months of this year, the environment of very low interest rates became more favourable for the banking sector, and the net interest income received by banks was higher by a tenth year on year. Due to the previous decrease in loan interest rates, for a few previous quarters the losses incurred by banks were higher than the benefit from customer deposits, which cheapened as a result of low interest rates. However, fast growth in banks’ loan portfolio since mid-2015 prompted banks ‘to employ’ more funds, which enabled to mitigate the fall in their interest income,’ says Vytautas Valvonis, Director of the Supervision Service at the Bank of Lithuania.   

In the first quarter of 2016, banks’ net interest income amounted to EUR 97.2 million (EUR 88.1 million in the first quarter of 2015) to account for 61.4 per cent of banks’ total operating profit (up from 58.8% in the same period a year ago). The amount of net interest increased substantially, albeit interest income decreased by 2 per cent in the first quarter of 2016 year on year, and stood at EUR 119.5 million, but interest expenditure fell by more than a third, to about EUR 22 million. 

Total assets of banks and foreign bank branches operating in Lithuania amounted to EUR 23.5 billion on 1 April 2016, an increase of 0.2 per cent over the first quarter of this year. The net value of the customer loan portfolio has increased by 3.7 per cent over the first three months of 2016, to EUR 17.0 billion. Following a leap in customer deposits in the banking sector recorded in late 2015, they contracted by 2.3 per cent in the first quarter of 2016, to EUR 16.7 billion. According to the analysts, the last year’s money inflow, which could reflect the fact that some employers made payments (including bonuses) to their employees before the end of the year, in early 2016 was devoted for consumption or withdrawn from banks for other reasons.

All banks operating in Lithuania complied with both the minimum capital adequacy requirement and the capital conservation buffer requirement. 

‘While the banking system’s capital is in good state, for some banks strengthening their capital is relevant. Banks with capital of Lithuanian origin are characterised by lower capital adequacy indicators, while banks with parent banks in the Nordic countries hold larger capital stock margin over the set minimum requirement. Thus, with an unfavourable turn, it would be more difficult for the former banks to access additional capital in the financial market easily and at low cost. Hence, we devote significant attention to the assessment of risks assumed by banks; moreover, we are engaged in a dialogue with banks in order to ensure adequate capitalisation of the banking system,’ says Vytautas Valvonis.

Profits of banks and foreign bank branches stood at EUR 61.0 million in the first quarter of 2016, an increase of EUR 4.3 million (7.5%) year on year. 11 banks and foreign bank branches operated at a profit and only 2 market participants incurred a loss.

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 the first quarter of 2016 and disputes between consumers and banks settled by the Bank of Lithuania, go to the Banking Activity Review, the summary of bank indicators and the summary of consolidated indicators published on the website of the Bank of Lithuania.

Supervision of financial market participants, Banks