Bank of Lithuania
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The Lithuanian banking sector started this year afresh. In 2018, banks were generous in lending and earned the main part of their profits from lending activities. While the assets of the banking system have been growing, banks’ capital position remained sustainable.

"Banks have readily responded to the market needs – this is particularly evident from the rapid expansion of the portfolio of housing loans," said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania. With regard to generous lending and recent trends in the housing market, the Bank of Lithuania has increased the countercyclical capital buffer (CCyB) rate that banks must accumulate in order to improve the sector’s resilience and create a cushion for difficult times.

Given the overall view of the country’s banking sector and its current developments, the head of the Bank of Lithuania noted the appearance of new sector participants. "We have not seen such a phenomenon for a while, although it is long overdue. Therefore, we expect the newcomers to somewhat stir up the stillness in the market that is only convenient for the incumbents, by offering new services to customers and boosting competition in the financial market," said Mr Vasiliauskas.

At the end of last year, the European Central Bank (ECB) issued the first three specialised bank licences in Lithuania. One of such banks has already started its operation. These banks intend to offer consumer credits to residents, while some of them will be carrying out the activities of lending to small and medium-sized businesses and accepting customer deposits. After a break, one of the longest-running banks has again started providing housing loans. At the time, 7 banks in Lithuania are holding a bank or a specialised bank licence, while 9 banks are carrying out their activities as foreign bank branches. Thus this number has increased by three market participants compared to the last year. Currently, the Bank of Lithuania, together with the ECB, is assessing 5 more applications, one of which is for a bank licence, while the rest of them – for specialised bank licences.

The value of household and corporate loans is distributed almost equally. Last year, growth in household lending was robust, with its value up by 8.4% to €9.5 billion, whereas corporate lending increased by 4.8% to €9.7 billion. The value of household loans rose by nearly €740 million, and the value of corporate loans – by almost €450 million. The total loan value increased by 6.7% (€1.3 billion). The decline in overall growth was mainly due to the fact that the value of loans granted to general government institutions has contracted by a fifth.

The main driving force behind banks’ lending activities remains unchanged – for the major part, banks tended to finance the acquisition of housing, with housing loans comprising as much as 80% of all household loans. The value of household loans surged by nearly €550 million – a year-on-year increase of almost 8%. As regards the business segment, banks granted more loans to trade and transport enterprises as well as holding companies. However, the value of loans granted to construction enterprises and providers of public utilities has dropped.

Regardless of the environment of low interest rates, the amount of household deposits in 2018 continued to grow by more than 11% (€2.2 billion) and accounted for €22.3 billion at the end of the year. The largest growth in deposits, standing at almost €1.4 billion, was recorded in the last quarter of the year. This upswing was driven by the patterns common to the end of each year, as that is the time businesses make settlements with their suppliers and employees. Growth in deposits was mainly contributed by households – their funds held with banks accounted for 60% of all deposits.

Due to active lending activities, the assets of the banking system grew by 4.7% in 2018 and amounted to €28.6 billion at the end of the year, while the liabilities (86% of which are comprised of deposits) amounted to almost €26 billion. Last year, the banking sector generated a net profit of nearly €358 million. Almost two thirds of banks’ operating income stemmed from the increase in net interest income resulting from active lending activities, while fee and commission income was on the rise as well. Last year, banks and their branches operating in Lithuania payed more than €45 million in income tax to the State budget.

At the end of 2018, the overall capital adequacy ratio of the banking system stood at 18.6% and was slightly lower than a year ago. Such decrease was led by the growth in bank balances as a result of credit activities, leading to higher bank capital requirements for credit risk. Last year, banks and central credit unions had to accumulate a 0.5% CCyB. This rate will be raised to 1% as of 30 June, thus increasing the financial system’s resilience to potential shocks.