Vasiliauskas: bank profits at a pre-crisis level, loan portfolio shrinks
The profit earned by banks in Lithuania in 2011 made up LTL 1.1 billion. This operational result is close to the record registered in 2007, the year of economic upsurge. In contrast with the peak period however, the profit growth was driven largely by factors other than expanding operations.
“This optimistic result was determined by a declining need for loan loss provisioning, as a number of clients who had been looked upon as hopeless earlier, but have proven their ability to continue with their obligations. This showed banks were too conservative towards client solvency during the crisis at its height,” Governor of the Bank of Lithuania Vitas Vasiliauskas said.
The governor noted a huge impact that the reassessment by two banks of their investments into leasing subsidiaries which returned to profitable operations made on the banking sector profits.
Operational result of banks also grew driven by higher net interest rates. The latter jumped last year by 14% to LTL 1.3 billion as a result of more active borrowing and an ongoing decrease in the price paid by banks for deposits and other monetary resources.
In 2011, indicators of the banking system suffered a lot from the events at the end last year when the bankruptcy of AB bank SNORAS was initiated. After cancelling the bank’s operational licence and following a decrease in the number of banks operating in the country, the assets of the banking system contracted in 2011 by LTL 2.7 billion (3.3%) to LTL 78.9 billion. All in all, the assets of all operating banks, excluding SNORAS, grew during 2011 by 6.7% or LTL 4.9 billion.
The deposit curve changed direction several times last year. After a slight bank deposit decrease in the first half last year, a moderate growth trend was observed in the second half. Bank deposits had reached record heights before the SNORAS events, but deposit dynamics were badly affected by halted operations of SNORAS in mid-November. Fortunately, the shock suffered by depositors was short-lived and deposits started flowing back to banks in December, the month the deposit insurance compensations were offered.
At the end of 2011, bank deposits totalled LTL 43.2 billion, a decrease of LTL 2.2 billion or 5% compared with the start of the year. Excluding deposits with SNORAS, the annual growth rate is expected to be 10.3% or LTL 4 billion.
“The banking sector has withstood stress tests to prove it was prepared for real challenges and attacks of its information systems, a couple of which have been seen recently. It has become more transparent and therefore healthier and more reliable”, Vasiliauskas added.
Last year banks remained conservative in their lending approach, but a slight recovery could be traced. In the second half, the flow of new loans surpassed the flow of repaid loans for a couple of months. However, this was not enough for gross annual result to be positive: the loan portfolio of operating banks, excluding SNORAS, shrank in 2011 somewhat about 0.3% to LTL 53.9 billion. This fall however was far more moderate compared with a decrease of LTL 9.9 billion and LTL 3.2 billion in 2009 and 2010 respectively .
“Regarding lending activities in 2012, I am a moderate optimist. In case the loan portfolio is to grow this year, the growth will be only minimum. Economic systems of Lithuania and its key trade partners, which contributed to the growth deceleration, will held the lending back too”, the governor forecasted.
Vasiliauskas confirmed the banking system was sufficiently capitalised and has complied with the current capital adequacy requirements and the new ones to be applied in the nearest future. The strengthening of capital base is more relevant for banks which do not have subsidiaries. Specific capital needs in the nearest future will depend on the amount of special provisions to be made by banks against non-performing loans.