2012-10-30
Survey: Lithuania’s financial institutions are mainly concerned over lasting debt issues in European countries
The results of a new survey of risks to Lithuania’s financial system carried out by the Bank of Lithuania suggest that the domestic financial system is seen as stable, with the highest risks for it stemming from debt sustainability issues in other European countries, their links with the financial sector, and the likely contagion effects on the Lithuanian economy. In addition, an energy price shock and the likely too slow recovery in Lithuania’s economy are raising concerns for financial institutions.
“Both euro area issues and an energy price shock may have negative effects on Lithuania’s economy. The significance of these external risk channels is heightened by limited measures for their prevention in Lithuania, therefore reducing their negative effects is hardly possible”, Gediminas Šimkus, Director of the Financial Stability Department of the Bank of Lithuania commented on the survey results.
The ongoing economic issues in Europe have resulted in a somewhat worse assessment of the recovery in Lithuania’s economy than it was in the previous spring survey, but an economic downturn is not expected over the 12 months ahead. Compared to the previous assessments, credit risk of households and corporates continued to decline and the probability for financial institutions to face financing difficulties is also lower.
Representatives of financial institutions pointed out that they were concerned about likely changes in the country’s political environment. Quite a few of the respondents stated they feared economic policy continuity problems or of taking populist decisions once new political forces come to power.
The purpose of the survey of risks is to identify the major threats to Lithuania’s financial system, assess the probability of occurrence of unfavourable events and their likely impact on the domestic financial system. Corporate executives, risk managers or other representatives highly experienced in working in financial markets of 26 corporates answered the survey questions.
A comprehensive report on the survey which was carried out for a fourth time is available on the website of the Bank of Lithuania.