Member of the Board Marius Jurgilas interview with „Verslo žinios“
Paulius Čiulada interviews Marius Jurgilas, Member of the Board of the Bank of Lithuania. This interview was published on 30 July 2017 in the daily newspaper Verslo žinios (VZ.LT).
Why was it decided to invite more banks to Lithuania? Is this an initiative by the Ministry of Finance, Bank of Lithuania, or the new Government?
The Bank of Lithuania’s strategic directions for 2017–2020 include becoming a financial sector partner encouraging innovations and sustainable growth and formation of a competitive and advanced payments market in Lithuania. The Bank of Lithuania aims at increasing competition in the Lithuanian financial sector: with growing numbers of market participants, there are newcomers offering more efficient and low-cost services, thus incumbents need to step up their game as well.
The market of Lithuanian banks in Lithuania is relatively concentrated – 3 banks take up a major part of the market. But this isn’t a situation characteristic of only Lithuania, as many small countries experience it as well. Therefore, we can be attractive to foreign market participants as a market first, through which 450 million people living in the European Union can be reached.
The Bank of Lithuania proposed the idea of a specialised banking licence and prepared appropriate draft legislation – the goal was to increase competitiveness within the basic financial services sector. With approval by the legislative body, the possibility for credit unions to become banks was simplified, while easier establishment of banks drew the attention of new market participants. Recently we have been experiencing significant interest from really strong potential market players abroad. In particular, investors from Israel, Germany, China, Singapore, US, UK, Estonia, Latvia, Poland, Sweden and other countries are interested in specialised banking licences.
The active work of the Bank of Lithuania and other institutions on publicising opportunities to set up in Lithuania is bearing fruit. We can clearly see that information on Lithuania’s advantages has spread far and wide – we are recommended by foreign financial sector associations, other companies that have already received or plan to receive this licence; we garner attention from foreign media.
In relation to reduction of the licence fee, in February 2017 the Bank of Lithuania, taking into account the actual cost of providing administrative services, presented to the Ministry of Finance a proposal on the recalculation of the licensing fee for banks from EUR 50,000 to less than EUR 5,000.
Is there no risk that eased requirements will attract to the country banks of a less-than-stellar reputation?
It should be noted that specialised banks differ from regular banks not only because of a lower minimum capital requirement – they have a EUR 1 million minimum capital requirement instead of the regular EUR 5 million requirement applied to regular banks – but also in the range of services provided to customers. Specialised banks can also provide regular banking services – accept deposits, provide loans, payment services, etc., but they cannot engage in more complex operations, such as those related to derivative financial instruments or investment banking. However, both specialised and regular banks have to comply with the same supervisory requirements, including capital adequacy criteria, money laundering prevention requirements and other operational requirements.
But critics claim that eased requirements will attract weak banks, as strong players don’t see the capital barrier or licence price as an issue when entering a new market?
The mere appearance of a new licence does not increase the risks raised by new players entering the market. Regarding the reputation of new foreign subjects, this is a different issue and here we are very strict – the main criteria for entering the Lithuanian market is a reliable source of capital, impeccable reputation of managers and shareholders, sustainability of the business model. This is something we clearly state to potential investors as well. We also take appropriate steps internally at the Bank of Lithuania and dedicate resources to the assessment and management of risks raised by new participants.