Reinoldijus Sarkinas: In 2006, the banking sector development has remained very fast

“We can say firmly that the banking sector development remained very fast last year. The national economy and the continued high growth of the credit portfolio were the main driving forth behind such fast development,” said Mr. Reinoldijus Sarkinas.

Assets of the operating domestic commercial banks and foreign bank branches equalled to LTL 58.9 billion, a year-on-year growth of 31.3 per cent. The loan amount issued to the customers made up LTL 38.6 billion, 48.9 percent more compared to 1 January last year. On 1 January 2007, the deposits with the domestic banks amounted to LTL 30.3 billion, a 20.5 per cent growth year on year. Out of them, the residential deposits made up LTL 17.9 billion going up 29.9 per cent during the last twelve months. (In 2005, the growth of this type of deposits was 40.2 per cent). In 2006, all domestic banks and foreign bank branches were operating with a profit. The gross unaudited result of the domestic banking system in 2006 was a profit of LTL 662.2 million, i.e. 87 percent higher than in 2005.

Mr. Reinoldijus Sarkinas underlined that such significant improvement in the profitability and efficiency ratios were mostly achieved by the virtue of the increased scope of operations and income growth in most areas of activities among which the income generated by the loan portfolio played the major role.

The governor of the Bank of Lithuania also noted that deposits collected in the retail market were not enough to finance the fast growth of the banking sector assets, therefore banks had to borrow in the external market, mainly from the parent banks. Banks focused on the new borrowing products. The banking sector concentration increased last year as a result of the growth of the market share under the control of the three major banks (AB SEB Vilniaus bankas, AB bankas Hansabankas, and AB DnB NORD bankas).

While speaking about credits, Mr. Reinoldijus Sarkinas pinpointed to the fact that the credit share in the structure of the bank assets last year was the highest in the recent decade. Loans to private companies prevailed, but the share of consumer loans and lending for house purchase has kept increasing year by year. The debt of the Lithuanian population however remains low both in absolute and relative terms. While the quality indicators of the banking loan portfolio continued to be relatively good, the share of the overdue loans (with delayed payments of 60 days and more) in the loan portfolio grew from 0.61 to 0.97 per cent during the year. In relative terms, the biggest share of the overdue loans could be observed in the consumer loan portfolio (up to 1.9 per cent of the total loan portfolio), whereas the housing loans accounted for the lowest share (0.54 percent).

The governor of the Bank of Lithuania also underlined an increase of the bank capital adequacy ratio during the year despite of the tightening of the rules for the bank capital adequacy calculation and rapid development of the banking system, both of which lead to an increase in the bank reserves for the amortisation of the unexpected loss.

Asked by journalists about his forecast concerning the banking sector development in the current year, Mr. Reinoldijus Šarkinas said one should not expect a marked slowdown. He reminded journalists of the further absorption of the EU's structural funds by Lithuania, which undoubtedly will have effect on the banking sector activities. Moreover, analysts do not forecast any significant changes in interest rates. “Therefore the credit growth is to continue. In terms of the percentage it will not be the same as last year, but I do not think that compared to 2006 it will be lower in absolute figures," said Mr. Reinoldijus Sarkinas.

He also mentioned that the Bank of Lithuania carries bank-by-bank inspections on a yearly basis and is very strict when it comes up with the situation in a bank. “Inspection results have been improving year by year. Today, we discussed the reports on the inspection of two banks and had only a few critical remarks concerning the risk evaluation. Banks have been doing their risk evaluation properly, so far. But if any threat or concern emerged about inappropriate risk management, the Bank of Lithuania could take measures to restrict the growth of the loan portfolio of such bank. But today, there is no need for it,” said Mr. Reinoldijus Sarkinas.