2018-03-27
Last year, banks operating in Lithuania lent actively to both households and businesses, which determined significant growth in assets and income.
‘Last year banks contributed to the boosting of the economy and did not do that on account of financial stability. Basic financial indicators of the banking system remained sustainable, while the portfolio of bad loans contracted to the pre-crisis level,’ said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania. According to him, one of the major market events last year was a merger of two banks, which had an effect of the results of the entire banking sector and its concentration in the market.
The household loans rose by almost a tenth in value (to €8.80 billion), the business loans portfolio – almost 7.5% (to €9.2 billion). Loans granted to households last year increased by more than €700 million in value. The total value of loans rose by 3.2% (more than €0.5 billion). Weaker growth was due to a decline in the value of loans granted to general government and financial institutions of €0.8 billion.
Financing of housing acquisitions was the main driver of the credit market. Over the year, loans granted to households rose by almost €600 million or 9.1% in value. Within the business segment, banks lent more to trade, production and transport enterprises; however, loans granted to construction enterprises and providers of public utilities went down in value. With growth in enterprise investment and housing market activity not subsiding, lending volumes are likely to be similar this year.
Despite the low interest rates environment, the amount of customer deposits with banks rose further by almost 7% (€1.3 billion), to €20 billion at the end of the year. The largest contribution to deposit growth – almost two-thirds of their amount – stemmed from households.
Due to active lending the assets of the banking system grew by 6% over 2017, to €27.3 billion at the end of the year. Last year, net profits earned by the banking sector amounted to almost €240 million, a 4.6% decline from last year owing to the factors related to the merger of the two banks. The largest share of profits resulted from growth in net interest income due to active lending, yet income from fees and commissions increased as well.
Last year’s merger of the two banks entailed a change in the concentration in the market: the asset share of the three largest banks swelled from 73% to 82%, the loan share – from 71% to 83%.
‘Bank mergers diminish consumers’ possibilities to choose; hence we have even more intensified our efforts to attract new credit market players into Lithuania. About 25 domestic and foreign companies are currently interested in the possibilities to establish a specialised bank, of which 3 have already applied for it. It is thus likely that following an almost 10-year break old credit market players will have a competitor already this year,’ said Mr. Vasiliauskas.
The banking sector’s capital was sustainable in 2017. As at 31 December 2017, the overall capital adequacy ratio of the banking system was 19.1 per cent. Over this year banks and central credit unions will have to accumulate an additional counter-cyclical capital buffer of 0.5%, thus strengthening the financial system’s resilience to potential shocks. Banks with local capital are recommended to further strengthen their capital.
The quality of the loan portfolio continued to improve: bad loan levels fell even more over 2017, becoming below the EU average, and were the lowest in Lithuania since 2008.