Bank of Lithuania
Lietuviškai

Financial Stability Review (2026)

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Summary

The trend of global economic growth continued in 2025–2026, but elevated tensions posed a risk to financial stability. Equity markets continued to rise, dipping only temporarily during the periods of peak tension, and reflected the positive outlook. However, the outbreak of the conflict in the Middle East in the first quarter of 2026 had a global lasting impact, particularly due to rising energy prices. Projections indicate that this will lead to higher inflation in Lithuania and the euro area as a whole, though the increase will not be as significant as in 2022. Concerns over the growing inflationary pressures led to expectations of tighter monetary policy and an increase in EURIBOR. This, in turn, has raised borrowing costs for both households and governments. Yields on Lithuanian government securities have also risen in this environment, though the change was in line with other countries. Overall, although the financial system remains resilient despite the challenging geopolitical environment. However, a further escalation of the conflict in the Middle East could trigger a repricing in financial markets, increased credit risk, weaker government debt sustainability and a deterioration in the quality of the banking sector’s assets.

Given the sound economic situation in Lithuania, the financial position of businesses and households was strong, but the energy crisis could have an adverse effect on their ability to meet their obligations. In 2025, sales grew in most major economic sectors, while the number of newly initiated bankruptcy proceedings continued to decline. The manufacturing, transport, and agriculture sectors, which are more sensitive to changes in export demand, energy prices and energy supply disruptions, face the greatest risk of a direct impact from the conflict in the Middle East. The probability of default in these sectors is mitigated by low debt levels, good loan portfolio quality as well as sufficient debt service capacity and liquidity buffers. However, due to interconnectedness or prolonged disruptions in energy supply, vulnerabilities could spread to other companies through secondary channels. In turn, wages that have risen rapidly over the past few years have contributed to improved household saving capacity and increased borrowing, but these trends may be dampened by the expected rise in energy prices and inflation. A significant share of borrowing at variable interest rates makes households, particularly those with the lowest income, more sensitive to rise in EURIBOR rates. Provided the conflict in the Middle East does not escalate into a deeper crisis, households should remain able to weather short-term shocks. Their resilience is underpinned by accumulated savings, funds withdrawn from the second pillar pension fund, and RLR measures that limit borrower risk.

Lending to households and businesses was among the fastest growing in the euro area, although debt levels remain low and access to credit for some businesses is constrained by collateral requirements. The growth rates of credit to the private non-financial sector accelerated significantly over the year, reaching historical highs. However, the level of indebtedness to credit institutions in Lithuania remains among the lowest in the euro area. Households actively borrowed for housing, consumption and other purposes, while lending to businesses covered both large firms and SMEs across most major economic sectors. Despite rapid credit growth, no broad credit market imbalances were observed, while some businesses continued to face structural challenges in accessing finance, as real estate collateral is required relatively more frequently in Lithuania than in other EU countries. This is partly explained by the purpose of the loans and the greater importance of SMEs in the national economy. Even so, there are indications that the existing measures do not sufficiently address the widespread requirement for real estate collateral. Due to limited access to bank financing, companies seek alternative sources of funding. As a result, the volume of funds raised on bond and crowdfunding markets has grown significantly in recent years, while the strengthening role of ILTE is expected to further improve businesses’ access to financing in the future.

Risks in residential and commercial real estate differ according to the phase of the cycle. In housing, strong demand carries the risk of unsustainable price growth; in the Vilnius office segment, oversupply carries the risk of a price correction. Activity in the housing market is about 10–15% above its long-term trend and is expected to increase further due to withdrawals from the second pillar pension fund. Simulation results indicate that the number of housing transactions could increase by an additional 3–10 pp in 2026–2027 due to second-pillar funds. In case of a supply- demand mismatch, price imbalances could widen, making the housing market more vulnerable to shocks. On the other hand, low household debt levels and a sound financial position reduce the likelihood of risks materialising. Due to oversupply in the Vilnius office segment (vacancy rates are around 10%), the risk of price correction remains elevated. However, as the pace of new construction and price growth has slowed, the risk level in the Vilnius office segment has remained unchanged. The situation in other commercial real estate segments is favourable, with no imbalances observed.

The banking sector reported strong operating results, maintained high loan quality and a high level of resilience to potential shocks, but the performance of more significant institutions remained considerably stronger than those of less significant ones. Despite a decline in profitability, the Lithuanian banking sector remained among the most profitable in the EU. This was driven primarily by significant expansion of one market participant into foreign markets, net interest income, which – although declined over the year – remained historically high, and improved operational efficiency, largely attributable to more significant institutions. At the same time, the share of non-performing and high-risk loans in portfolios remained low. Stress tests of the banking sector’s solvency and liquidity conducted by Lietuvos bankas indicate that the capital depletion under an adverse scenario does not pose a risk to the stability of the sector, while large reserves of liquid assets would enable the banking sector to withstand potential liquidity shocks.

The risk from systemic cyber incidents has increased slightly. Prevailing geopolitical tensions continue to fuel cyber and hybrid attacks targeting strategically important sectors, while growing reliance of banks on third party service providers and rapidly evolving technologies, especially very rapid development of AI and increasingly sophisticated AI models, have increased the likelihood of systemic incidents for the financial system. However, cyber threat management remains high on the agenda, with supervision and cooperation continuing to strengthen at national and international levels, and financial institutions further increasing their investment in cyber resilience.

The development of key non-bank financial sectors in Lithuania is sustainable, despite a significant decline in the asset portfolio managed by pension funds. The withdrawal of second-pillar funds in early 2026 reduced pension funds’ assets under management by more than a third, from €11 billion to approximately €7 billion. However, this process does not pose any direct risks to financial stability. The investment fund and insurance sectors grew steadily: insurance companies operated profitably and met solvency requirements, while assets of investment funds increased by 11% over the year, and the importance of funds investing in equities and debt securities continued to grow. Capital and liquidity ratios of individual credit unions remained lower than those in the banking sector, highlighting the need to strengthen their resilience. In the fintech sector, about one-third of companies operated at a loss and their resilience to shocks varied greatly. The limited interconnection between the non-bank sector and banks helps to manage potential systemic risks.

The macroprudential policy measures in place remain appropriate to the current level of risk and to strengthening the resilience of the financial system. Changes to housing loan regulation are also contributing to a more active and competitive housing loan market. The CCyB rate of 1% remains appropriate to address the moderate level of cyclical risk that has built up in both the household and non-financial corporate sectors. Given the higher level of risk in the housing loan market, an additional 2% sector-specific SRB is applied to enhance the resilience of banks to potential losses. Rapidly increasing activity in the housing market and expansion of the consumer loan portfolio indicate a potential build-up of risks, although withdrawals from the second pillar pension scheme and RLR changes add uncertainty to the overall assessment of risk levels. These trends are being closely monitored and, if necessary, may be addressed by adjusting macroprudential capital requirements. The changes to the RLR, which will take effect on 1 August 2026, will contribute to a smoother functioning of measures and strengthen the resilience of borrowers in a changing interest rate environment. At the same time, more than a year after the amendments to the Republic of Lithuania Law on Real Estate Related Credit took effect, the volume of housing loan renegotiations and refinancing has more than doubled, indicating a significant pick-up in market activity, while consumers, taking advantage of these opportunities, are improving their loan terms considerably. Furthermore, following the entry into force of the requirement on 1 May 2025, the rapidly growing share of fixed-rate loans suggests that regulatory changes have broadened consumer choice and strengthened competition among lenders.

A screenshot of a cell phone AI-generated content may be incorrect.

1.Status, risks and resilience of the financial system

1.1.Developments in the Lithuanian and international macroeconomic environment and financial markets

Although the global macroeconomic environment in 2025–2026 was marked by tensions and shocks, economic growth remained resilient. Since the announcement of new tariffs in April 2025, uncertainty surrounding US trade policy has risen again and remains elevated (see Chart 1, left-hand panel). Nevertheless, the USA reached a number of tariff agreements with its trading partners throughout 2025, helping to ease the emerging tensions, and most countries did not retaliate by imposing tariffs. Also, despite the constraints triggered by trade tensions, global GDP grew by 3.4% in 2025, supported by investment by technology firms and fiscal stimulus; however, growth is expected to slow to 3.1% this year following the outbreak of conflict in the Middle East. The economic growth in the euro area is expected to decline to 1.1% this year (compared with 1.4% in 2025).[1]
[1] IMF, Financial Stability Review, April 2026.
Lithuania’s real GDP grew by 2.9% in 2025, driven by an increase in value added across nearly all economic activities. This year, growth will be supported by domestic factors, such as rapidly rising household consumption and investment, with real GDP projected to increase by 3.1%.[2]
[2] Lithuanian Economic Review, April 2026.

Stock indices rose, even though geopolitical tensions had an adverse effect on them.

Chart 1. Indices of uncertainty over trade and financial markets (left-hand panel) and stock indices (1/1/2025 = 100) (right-hand panel)

Sources: Lietuvos bankas and London Stock Exchange Group (LSEG).

Note: The Trade Policy Uncertainty Index measures the total monthly share of the number of articles in seven US newspapers referring to trade policy uncertainty (100 =1%). The VSTOXX is based on real-time option prices for the Euro Stoxx 50.

The stock markets followed an upward trend in 2025–2026, but economic shocks temporarily weighed on financial markets as well. In March 2026, following the US and Israeli strikes against Iran, tensions in the Middle East escalated and Iran, in response to these actions, launched strikes against the Gulf states and effectively halted energy supplies through the Strait of Hormuz leading to increased volatility in financial markets (see Chart 1, left-hand panel). Since the beginning of 2025, stock indices have risen significantly, driven primarily by the strong gains in major technology stocks, supported by expectations of continued AI development and adoption (see Chart 1, right-hand panel). The developments of euro area stock indices broadly mirrored those in the US. The Vilnius OMX index fell by a smaller margin than European and US indices both in April 2025, when tariff-related tensions intensified, and in March 2026, when the conflict in the Middle East began, and has therefore recorded stronger gains since the start of 2025. Overall, although market volatility was significant, it did not reach the levels seen during the COVID‑19 pandemic and at the onset of Russia’s invasion of Ukraine.

With the outbreak of conflict in the Middle East, energy prices have risen significantly, although futures indicate that they are likely to decline gradually (see Chart 2). Disruptions to oil and gas supplies through the Strait of Hormuz and increased concerns over the future supply security have led to a weaker energy supply and a sharp increase in prices. The price of Brent crude oil exceeded the $100 per barrel threshold for the first time since August 2022, while the price of Dutch TTF gas nearly doubled. However, these changes, while significant in the context of recent years, did not reach the levels observed at the onset of Russia’s invasion of Ukraine. Futures indicate that energy prices should decline but are expected to remain above their pre-conflict levels. In the longer term, oil prices are expected to remain higher by about $15 per barrel than before the conflict, and gas prices higher by about €10 per megawatt-hour. Despite these market expectations, the outlook for energy prices remains highly uncertain and their trajectory will depend on how quickly and smoothly disrupted energy supplies can be restored.

Higher energy prices are expected to gradually decline but remain at a higher level than before the conflict in the Middle East.

Chart 2. Prices and futures of Brent crude oil (left-hand panel) and Dutch TTF natural gas (right-hand panel)

A close-up of a graph AI-generated content may be incorrect.

Source: LSEG.

Higher energy prices may lead to higher headline inflation in Lithuania and the euro area as a whole (see Chart 3, left-hand panel). Inflation projections were revised upwards in both the ECB’s March 2026 staff projections and Lietuvos bankas April macroeconomic forecasts. Average annual inflation is projected to increase to 2.6% in the euro area and to 5.1% in Lithuania in 2026.[3]
[3] Under an adverse scenario, if energy supply disruptions persisted until the fourth quarter of 2026 (compared with the third quarter under the baseline scenario), average annual inflation rate could approach 6% in 2026.
Expectations of higher inflation also contributed to rising EURIBOR rates: the 6-month EURIBOR went up by about 0.4 pp from its pre-conflict level as investors anticipated that the ECB would raise the key interest rates. Although significant changes in inflation are anticipated, its level is not expected to reach the highs observed in 2022, when it exceeded 10% in the euro area as a whole and 22% in Lithuania. Therefore, markets do not expect that inflationary pressures will force the ECB to raise interest rates at a similar pace (at the peak of the tightening cycle, the ECB’s deposit facility rate reached 4%). In the medium term, inflation is projected to return to the ECB’s target of 2%.
With inflationary pressures mounting and increasing expectations of ECB interest rate hikes, the borrowing costs for the Lithuanian and other euro area governments have risen (see Chart 3, right-hand panel). Since the start of the conflict in the Middle East, the yield on Lithuania's 10-year government bonds has risen by about 40 basis points, broadly in line with the developments in other euro area countries.[4]
[4] This increase may reflect both the elevated credit risk and rising expectations of higher ECB key interest rates in the future. Increased global uncertainty and government efforts to mitigate the shock of energy prices through additional fiscal stimulus may have contributed to the rise in the risk of sovereign debt unsustainability.
Although Lithuania’s 10-year bond yield remains one of the highest in the euro area, spread over the German 10-year government bond yield remains below 1 pp. Other indicators of liquidity and credit risk also showed no deterioration in the sustainability of public debt,[5]
[5] Over the year, the liquidity premium, measured by the bid-ask spread, remained broadly unchanged at around 10 basis points, while 5-year credit default swap (CDS) spreads, which reflect credit risk, even narrowed from ~55 to ~45 basis points.
and on 27 April, the rating agency Fitch Ratings even upgraded Lithuania’s credit rating from “A” to “A+”. Furthermore, Lithuania’s general government debt-to-GDP ratio remains one of the lowest in the euro area at around 40%, and debt servicing costs are projected to amount to 0.9% of GDP in 2026, compared with the euro area average of 1.5% of GDP. That being said, looking ahead, Lithuania’s debt-to-GDP ratio is projected to rise rapidly as higher defence spending is incorporated into the fiscal outlook.[6]
[6] Lithuanian Economic Review, April 2026.

The yields of government securities grew in line with the inflation outlook.

Chart 3. Inflation, EURIBOR and their projections for Lithuania and the euro area as a whole (left-hand panel) and 10-year government bond yields (right-hand panel)

Sources: Lietuvos bankas, LSEG, IMF and Chatham Financial.

Note: The left-hand panel shows the projections of the ECB and Lietuvos bankas.

Overall, as the conflict in the Middle East continues to escalate, risks to financial stability could increase. In this environment, the main systemic risks to financial stability in the EU stem from the risk of financial market corrections–which could be amplified by vulnerabilities in the non-bank financial sector–and rising credit risk associated with a deteriorating macroeconomic environment.[7]
[7] European Systemic Risk Board Report, 2025.
A correction in the financial markets could lead to increased risks to sovereign debt sustainability and weaken asset quality in the banking sector. If the conflict persists, secondary effects on the real economy and the financial system may become more pronounced. Slower economic growth and higher inflation would weaken the financial positions of businesses and households, potentially increasing the credit risk, particularly in sectors more vulnerable to energy shocks (see Section 1.3 for more details). Finally, increased uncertainty and rising interest rates could dampen demand for credit and increase debt servicing costs for both the government and the private sector.

1.2.Credit and indebtedness developments

The annual growth of the loan portfolio to the private non-financial sector accelerated significantly to historically high levels, but the level of indebtedness to credit institutions remained among the lowest in the euro area. Annual growth of the housing loan portfolio reached14.9% in March 2026 (see Chart 4, left-hand panel) and was the highest since March 2009. Annual growth of lending to NFCs and to Lithuanian households for consumption and other purposes reached about 18% in March 2026. Overall, the loan portfolio continued to grow from a rather low level relative to GDP (see Chart 4, right-hand panel). It should be noted that a similar pattern can be observed across other euro area countries, with the loan portfolio growing faster where the loan-to-GDP ratio is lower (e.g., in Bulgaria and Latvia). Similarly, when assessing not only MFI lending but the entire financial system’s lending to NFCs,[8]
[8] The financial sector includes not only MFIs but also leasing and other financial companies that are the subsidiaries of banks.
the portfolio grew at a faster pace as well, though slightly less so by the end of 2025 (13.8%). Taken together, these indicators suggest that borrowing dynamics in Lithuania are less exceptional than they may initially appear.

The portfolio of loans to the private non-financial sector grew strongly, but this pattern can be seen in euro area countries with lower levels of indebtedness to credit institutions.

Chart 4. Annual development of the portfolio of loans to NFCs and households (left-hand panel) and the level of private sector debt and annual growth of the loan portfolio (right-hand panel)

A graph and chart of growth AI-generated content may be incorrect.

Sources: Lietuvos bankas, ECB and Eurostat.

Notes: Left-hand panel: the financial sector includes not only MFIs but also leasing and other financial companies that are the subsidiaries of banks;

right-hand panel: AT – Austria, BE – Belgium, BG – Bulgaria, CY – Cyprus, DE – Germany, EE – Estonia, ES – Spain, FI – Finland, FR – France, GR – Greece, HR – Croatia, IE – Ireland, IT – Italy, LT – Lithuania, LU – Luxembourg, LV – Latvia, MT – Malta, NL – Netherlands, PT – Portugal, SI – Slovenia, SK – Slovakia. For Ireland, gross national income is used for calculations instead of GDP.

Despite the upturn in the financial cycle, no broad-based credit market imbalances have been observed. The financial cycle in Lithuania grew significantly in 2025, with the broad credit-based index calculated by Lietuvos bankas reaching its long-term average at the end of the year (see Chart 5, left-hand panel). Despite a significant increase driven by strong lending activity, the level of corporate and household indebtedness remained among the lowest in the euro area. The MFI loan-to-GDP ratio stood at 39.4% at the end of 2025 (an annual increase of 3.4 percentage points). However, its deviation from the long-term trend remained negative, indicating that there are no signs of excessive lending.

Robust lending increased household liabilities, but the overall debt level did not rise significantly. Housing credit, which has been growing strongly for several years, had the greatest impact on the increase in household liabilities, with outstanding housing loans of households growing by nearly 15% and total liabilities increasing by 12% over the year.[9]
[9] Trade credits and advance payments to NFCs contributed most to the growth in household liabilities in 2023; these are included under “other liabilities” in the right-hand panel of Chart 5.
(see Chart 5, right-hand panel). A quarter of the increase in household debt is attributable to loans granted for consumption and other purposes. In 2024, lending for consumption and other purposes accelerated, as these liabilities increased by 16% and by another 17% in 2025. Nevertheless, the overall level of household debt remains relatively low: household liabilities, as a percentage of GDP, increased by about 1.6 pp over the year (to 31.6%), which is in line with the average for the past decade and remains among the lowest levels in the EU.

Strong lending to households and businesses contributed to the significant growth of Lithuania’s financial cycle.

Chart 5. Lithuanian financial cycle index based on broad credit (left-hand panel) and change in household liabilities and its contributing factors (right-hand panel)

Sources: State Data Agency, Lietuvos bankas and Lietuvos bankas’ calculations.

Note: the left-hand panel uses a broader definition of credit, covering all credit extended regardless of the lender (not just MFIs).

Both large firms and SMEs in most major economic sectors are actively receiving financing. In 2025, the MFI corporate loan portfolio grew significantly (at least 10%) in most major economic activities (see Chart 6, left-hand panel), while the flow of new loans to businesses was 22.7% higher than a year earlier. However, the loan portfolio grew more strongly in those sectors where the level of credit was already higher relative to the value added they generate. Financial institutions actively extended credit to both large firms and SMEs, with new loan flows in these segments exceeding long-term averages and loan portfolios growing by 14% and 19%, respectively, over the year. Looking ahead, the pace of corporate lending is expected to remain robust in the near term, with no significant tightening of corporate lending standards observed in the first quarter of 2026 and demand for corporate loans continuing to rise, particularly in the SME segment.[10]
[10] Based on the bank lending survey conducted by Lietuvos bankas in the first quarter of 2026.
The growing demand reflects the increased need for investment financing and working capital. Some banks expect demand from SMEs and for working capital to continue to rise in the coming quarter: while the impact of the conflict in the Middle East may cause some firms to postpone planned investments, higher energy prices may lead to a greater need for working capital for some businesses.

Companies are increasingly turning to alternatives to bank loans to raise funding. A 2025 survey by the European Investment Bank shows that a significant proportion of Lithuanian SMEs still face difficulties accessing loans, and the share of micro and small enterprises complaining about tight collateral requirements remains one of the highest in the EU (see Box 1 for more on collateral requirements and access to credit for businesses). Limited access to bank financing drives companies to seek alternatives, and the flow of funds raised from other financing sources has grown significantly in recent years. In 2025, Lithuanian companies were actively borrowing from other NFCs and through trade credit, with the respective portfolios growing by 18% and 9% over the year. Companies raised nearly €380 million last year in the crowdfunding market and as much as €880 million in the bond market (annual growth of 36% and 90%, respectively; see Chart 6, right-hand panel). These funding sources accounted for 6.7% and 15.5%, respectively, of the funds lent by credit institutions to companies in 2025. Over the past few years, the share of bond issuers that have never had bank credit has increased significantly. This indicates that for some companies the bond market is becoming not only complementary to bank funding but, in certain cases, the only alternative.

In 2025, corporate financing accelerated through both credit institutions and non-bank financing sources.

Chart 6. Ratio of the corporate loan portfolio to gross value added and the annual growth of the loan portfolio by economic sector (left-hand panel) as well as corporate borrowing flows by source of financing (right-hand panel)

Sources: State Data Agency, Lietuvos bankas and Lietuvos bankas’ calculations.

Notes: GVA: gross value added. The loan portfolio and GVA ratio was calculated using the data for the MFI corporate loan portfolio in 2025 and GVA generated in 2024. Names of economic activities are abbreviated.

ILTE’s transformation into a national development bank strengthens the institution’s role in the corporate lending market. The financing provided by ILTE to businesses and agricultural entities in 2025 amounted to €490 million[11]
[11] €260 million was provided in the form of loans and €230 million in the form of guarantees (up by 239% and 5%, respectively, from 2024).
(up by 64% from 2024) and ILTE plans to mobilise and inject an additional €6 billion in investments into the Lithuanian economy over the next four years. The aim is for ILTE to serve as a market complement, focusing more on the creation and development of co-financing and risk-sharing instruments. During periods of economic downturn, ILTE could play a stabilising role by implementing countercyclical policies: at the time when private FMPs tighten conditions, ILTE financing would help offset cyclical credit fluctuations and ensure access to financing for businesses.

Prepared by Justinas Skurkis

Despite robust corporate lending in recent years, some Lithuanian companies continue to find it difficult to borrow, partly due to tight collateral requirements. The European Investment Bank's 2025 business survey shows that the share of companies in Lithuania that use external financing and are dissatisfied with collateral requirements decreased significantly over the past year and is now on par with the EU average (6%). However, in the micro and small enterprise segment, this share is as high as 16% and remains one of the highest in the EU. The importance of collateral in corporate lending is also reflected by the structure of the MFI loan portfolio by sector: businesses in the real estate and construction sectors, which are able to offer more real estate collateral, account for about one-third of the total corporate loan portfolio. Although new corporate loan flows are distributed somewhat more evenly across sectors relative to the gross value added they generate, Lithuanian companies are under-financed in all major sectors, except for real estate, in terms of both the loan portfolio and loan flows. Based on the literature and macroeconomic indicators,[12]
[12] The indicators were designed to reflect the following characteristics of the Lithuanian economy: a small open economy, significant role of SMEs, limited access to sources of financing alternative to bank loans and other complementary indicators (number of companies, productivity, etc.).
such an uneven distribution is observed only in the Baltic and Nordic countries among the selected group of comparable countries,[13]
[13] To assess whether the fact that Lithuania has one of the highest shares of collateralised corporate loans in the EU can be attributed to the domestic market characteristics or whether it reflects disproportionate requirements, the following comparable countries were selected: Latvia, Estonia, Poland, Slovakia, Czechia, Slovenia and Hungary. Sweden was also included due to the significant weight of Swedish-capital banks: although its macroeconomic indicators differ from those of Lithuania, decisions on lending and risk tolerance are often made there. Finland is included as a contrast country operating under similar geopolitical conditions but where access to credit for businesses is better.
largely due to the high share of credit extended to the real estate sector.
Lithuania stands out for having the highest share of loans with real estate collateral[14]
[14] Loans with real estate collateral are loans secured by real estate, regardless of the loan-to-value ratio or whether the loan is secured by other types of collateral.
in the EU, and this can be partly explained by the significant role of SMEs in the national economy. In terms of the share of loans secured by other types of collateral,[15]
[15] Loans with a different collateral are loans not secured by real estate but secured by other types of collateral.
Lithuania is in line with the EU median (23%), but it stands out among the other Baltic countries for having the highest share of loans with real estate collateral in its corporate loan portfolio, as nearly two-thirds of loans (by value) are secured by real estate, while the EU median is around 40% (see Chart A, left-hand panel). However, the corporate loan-to-value ratio[16]
[16] Loan-to-value ratio is the ratio of the collateral value to the loan amount.
in Lithuania is not significantly higher than in other euro area countries;[17]
[17] Degryse, H., De Jonghe, O., Laeven, L. and Zhao, T. (2025) Collateral and credit, ECB Working Paper Series No. 3095;
Koufopoulos, K., McGowan, D., Perdichizzi, S., Reghezza, A. and Spaggiari, M. (2026) Risky collateral and default probabilityRisky collateral and default probability, ECB Working Paper Series No. 3167.
thus, real estate collateral is required relatively more often in Lithuania, but not to a greater extent. Macroeconomic indicators can only partially explain the high share of loans secured by real estate in Lithuania. Aggregate profitability and solvency indicators for the Lithuanian corporate sector are average in the context of comparable countries, although they are linked to the lower share of loans secured by real estate. The use of real estate as collateral for loans is more common in countries where SMEs play a greater role in the national economy (smaller firms are, on average, associated with a higher level of credit risk), and this could partly explain the situation in Lithuania. Banks operating in Lithuania indicated[18]
[18] Based on the bank lending survey conducted by Lietuvos bankas in the second quarter of 2024.
that they lend without collateral only to large and financially strong companies with good debt service capacity.
In Lithuania, loans to non-real estate or construction companies are more frequently secured by real estate collateral, but this choice of collateral is linked to the purpose of the loan. The level of loan collateralisation remained fairly stable over the period under review[19]
[19] Data analysed for September 2019 to October 2025.
and stood at around 200% for both large companies and SMEs (see Chart A, right-hand panel). By comparison: the collateralisation level of the loan portfolio was nearly 100 percentage points higher, while the share of loans not covered by collateral[20]
[20] Loans granted without collateral and loans partially secured by collateral.
(10%) was noticeably lower than that of new loan flows (26%). These differences can be explained by the rarely used practice of partial collateral release: as the loan amortises, the portion of collateral required to cover it decreases, and the collateral itself is rarely released, so the loan-to-value ratio increases. Although the loan-to-value ratios across different sectors are similar, real estate collateral dominates in the real estate and construction sectors, while it is used less frequently in other sectors, but remains significant.[21]
[21] Loans secured by real estate collateral covering at least 30% of the loan value account for approximately 25% of the loan flow.
Furthermore, loans to non-real estate or construction companies are secured by real estate collateral more frequently in Lithuania than in other comparable countries (see Chart A, left-hand panel), and of all types of collateral, banks give the highest priority to real estate collateral.[22]
[22] Based on the bank lending survey conducted by Lietuvos bankas in the third quarter of 2025.
The widespread use of real estate as collateral is linked to the purpose of the loan, as loans for construction and real estate purchases, regardless of the company’s line of business, are typically secured by real estate.

The high share of loans secured by real estate in Lithuania is partly explained by the importance of SMEs and the purpose of the loans. 

Chart A. Share of loans secured by real estate and the share of real estate and construction sectors in the corporate portfolio (left-hand panel) and the loan-to-value ratio of collateralised loans to Lithuanian companies by company size and type of collateral (right-hand panel)

Sources: ESCB, Lietuvos bankas and Lietuvos bankas’ calculations.

Note: Only collateralised loans are included in the calculation of the loan-to-value ratio; finance lease loans are excluded.

Overall, companies that are more profitable, larger, and/or have better debt service capacity have greater access to bank loans, but the size of property eligible for collateral also plays an important role. Banks operating in Lithuania indicated during the survey[23]
[23] Based on the bank lending survey conducted by Lietuvos bankas in the fourth quarter of 2024.
that a larger collateral is not the main factor in granting a loan; the company’s ability to repay the debt sustainably, project’s prospects, company’s track record and its credit history are more important. This is partly confirmed by the microdata analysis conducted. During the period under review (late 2019 to mid-2025), the average liquidity and debt indicators of companies receiving a bank loan for the first time were no better than those of companies that had not taken out bank loans; however, the latter were smaller, less profitable or less able to repay their debt. The data show that banks care about the scale as they lend to companies with significantly higher nominal profits, turnover or cash flows.[24]
[24] The median annual turnover and nominal profit of companies without loans were nearly 5 and 10 times lower, respectively, than those of companies receiving a loan for the first time.
On average, a company that received a loan had about 7–10 times more potential collateral than the one that did not, but inadequate collateral is usually not the only deciding factor. Companies that already had a bank credit received new loans with lower collateral requirements on average (information channel effect).
Despite having some of the best banking performance indicators, major banks[25]
[25] Significant institutions participating in the Single Supervisory Mechanism.
extend a relatively low volume[26]
[26] In terms of the share of corporate loans, as a percentage of total loans, as well as the ratio of corporate loans to Lithuania’s GDP.
of credit to businesses compared to the euro area, while smaller market participants have higher credit risks and poorer asset quality. In the EU context, the Lithuanian banking sector is characterised by exceptionally high profitability and better loan quality, although it is relatively small and concentrated. The high quality of loans and the low ratio of non-performing corporate loans allow Lithuania to be compared with the Nordic countries, where a significant portion of corporate credit is also directed toward the real estate and construction sectors. The level of assets held by banks operating in Lithuania, as a percentage of GDP, is significantly lower than the EU average. On the other hand, in the context of the euro area, Lithuania’s major banks stand out for their low volume of corporate lending. Nevertheless, the structure of the corporate lending market in Lithuania is heterogeneous. The four major banks[27]
[27] Swedbank, AB, AB SEB bankas, AB Artea bankas (formerly AB Šiaulių bankas), Luminor Bank AS Lithuanian Branch.
play the most significant role in the segment of financing for large companies and together account for nearly 90% of new loans. In the SME segment, the market distribution is more even, with about one-third of new loans provided by smaller banks. Although Lithuania has a relatively large number of less significant credit institutions, their share of corporate lending remains small. At the same time, the balance sheet structure of small banks differs from that of large banks: loans and other receivables account for a larger share of their assets, but they tend to have a higher risk profile and lower asset quality due to the structure of their loan portfolios.
A more effective insolvency system and more efficient use of guarantees could reduce the constraints caused by a lack of collateral and facilitate access to credit for companies. An insufficiently effective insolvency framework reduces creditors’ chances of recovering funds in the event of corporate insolvency, which may lead to tighter collateral requirements. The State Tax Inspectorate’s Early Warning System[28]
[28] Under this system, companies at a higher risk of insolvency are identified and warning notices are sent to some of them. However, such notices of increased insolvency risk are sent annually to a limited number of companies, regardless of how many companies were identified as high-risk during that period.
does not alert of the risk all the companies that fall within the risk zone. It is also important for companies to ensure proper financial reporting compliance,[29]
[29] Although the Audit, Accounting, Property Valuation and Insolvency Management Service has been monitoring the quality of financial statements since 2022, only a fraction of statements of legal entities are reviewed each year, which does not ensure systemic monitoring of the quality of financial statements across all companies.
as operating with negative equity or submitting poor-quality financial statements can hinder access to external financing. In 2020–2024, on average approximately 20% of companies  operating in Lithuania, more than 90% of which were very small enterprises, had a negative equity indicator. Access to financing for companies that comply with financial reporting requirements but face limited lending from financial institutions can be improved by ILTE measures, particularly loan guarantees. According to the data of the International Association of Guarantee Institutions, Lithuanian SMEs make use of state guarantees a lot less frequently than in most other EU countries. In practice, the use of guarantees should better align with the profile and needs of companies facing financing constraints. Nearly half of the loans backed by ILTE guarantees are also secured by other types of collateral, whose value often significantly exceeds the portion of the loan not covered by the guarantee. The existing measures therefore fail to effectively address the problems associated with a real estate collateral requirement that is more frequent in Lithuania than in other countries.

1.3.Resilience of private non-financial sector

1.3.1.Resilience of corporate sector

Lithuanian non-financial enterprises remain resilient amid complex geopolitical tensions and economic uncertainty. Sales in most major economic sectors grew in 2025, while the turnover in sectors dependent on domestic demand is expected to continue growing due to robust household consumption and investment. Although the demand for goods and services from Lithuania’s main trading partners generally increased in 2025, foreign demand grew sluggishly in the second half of the year and the conflict in the Middle East may further constrain export growth. Nevertheless, confidence indicators of industrial companies in Lithuania and its major foreign trading partners have shown cautious optimism so far:[30]
[30] The improvement in sentiment was likely driven by stockpiling in anticipation of higher prices and supply disruptions, so the pick-up in demand may be temporary.
in April 2026, expectations in Lithuania remained above long-term averages, while in Germany and the EU they were getting close (see Chart 7, left-hand panel). In 2025, the number of corporate bankruptcy proceedings initiated in Lithuania was 12% lower compared to 2024 (see Chart 7, right-hand panel). In the first quarter of 2026, the total number of bankruptcies fell by a tenth year on year, with a significant decline recorded in the manufacturing sector, while the number of bankruptcies in the transport sector went up by more than a quarter. The average age of a company undergoing bankruptcy[31]
[31] The date of the decision to initiate bankruptcy proceedings (or the date it became final) was used for calculations.
(around 10 years) was in line with the long-term average, with the structure of corporate bankruptcies by length of operation remaining stable.

Over the past six months, expectations in industry have improved modestly, while the number of companies filing for bankruptcy has continued to decline in Lithuania.

Chart 7. The standardised deviation of the industrial confidence indicator from its historical average (2015–2026) in Lithuania, Germany and the EU (left-hand panel) and the average number of NFC bankruptcies per month (right-hand panel)

Sources: Eurostat, Authority of Audit, Accounting, Property Valuation and Insolvency Management and Lietuvos bankas’ calculations.

Note: Names of economic activities are abbreviated.

Due to the unrest in the Middle East, the sectors most sensitive to export demand, energy prices and energy supply disruptions face the greatest risk of direct impact; however, this vulnerability could spill over to other businesses as well. In March 2026, oil prices were 43% higher and gas prices 63% higher than in February. If higher energy prices or energy supply disruptions persist for a longer period, the most energy-intensive sectors, i.e. manufacturing, transport and agriculture, will face pressure on profit margins and may cut investment. These sectors account for slightly more than a quarter of Lithuania’s total gross value added and total corporate loan portfolio, yet their debt levels remain among the lowest compared to other economic activities: in 2024,[32]
[32] Based on the latest data from the financial statements (balance sheets, profit and loss statements) of NFCs.
assets of companies operating in both the manufacturing and transport sectors were more than double their liabilities (see Chart 8, left-hand panel). However, given the interdependence of these sectors, the losses incurred could spill over to other companies as shares of and loans to associates account for nearly half of assets of companies in professional, scientific and technical activities, and this share is also quite significant in other sectors. Were energy supply disruptions to persist, or additional damage to be inflicted on energy infrastructure, the negative impact would spill over to other companies through secondary channels, owing to faster growth in prices of energy and of a significant share of other goods and services.

The levels of non-performing loans across Lithuania’s key corporate sectors have historically been closely correlated. Therefore, if vulnerabilities were to spill over into other economic activities, pressures on the quality of bank loan portfolios would increase. Over the past three years, the corporate loan portfolio in Lithuania has grown the fastest in the euro area by more than 45%, yet the quality of the loan portfolio has remained stable. The overall level of non-performing corporate loans remains historically low, with the share of non-performing loans in the sectors most vulnerable to geopolitical tensions and rising energy prices, i.e. agriculture, transport and manufacturing, decreasing over the year by 1.8, 0.5 and 0.4 percentage points respectively. The share of non-performing loans of companies in professional, scientific and technical activities increased by 2.3 percentage points over the year but remains relatively low in a longer-term context (2.6%). The high correlation of non-performing loan levels across key sectors, particularly manufacturing, trade and RE operations, indicates a potential contagion risk, with interactions between sectoral shocks leading to a greater deterioration in the quality of bank assets (see Chart 8, right-hand panel).

The sectors most sensitive to changes in export demand and energy prices are among the least leveraged; their non-performing loan levels remain low, but vulnerability could spill over to other sectors.

Chart 8. Ratio of corporate liabilities to assets by type of liability in 2024 (left-hand panel) and correlation of non-performing loan levels across sectors (right-hand panel)

Sources: State Data Agency, Lietuvos bankas and Lietuvos bankas’ calculations.

Note: Names of economic activities are abbreviated. The correlation coefficients were calculated using data from Q3 2014 to Q4 2025.

The risk of corporate default is mitigated by sufficient debt service capacity and liquidity reserves. In 2025, corporate financial liabilities outpaced financial assets (annual increases of 13.4 and 6.9% respectively), but corporate liquidity ratios remain close to long-term averages (see Chart 9, left-hand panel). Although the cost of loans to companies began to decline in mid-2024, the increased level of indebtedness led to a higher debt service burden. Reserves accumulated in previous years helped cushion this burden as the profitability of Lithuanian companies[33]
[33] The aggregate net profitability ratio of Lithuanian companies in 2024 was 5.9%, return on assets was 5.7%, and return on equity was 11.7% (averages for 2015–2024 were 5.9, 6.1, and 12.4% respectively).
in 2024 declined slightly compared to 2023 but remained close to the average for the past decade, so, although the debt-to-profit ratio for the most vulnerable sectors and for Lithuanian companies overall rose, debt service capacity remained at a safe level (see Chart 9, right-hand panel). Nevertheless, against the backdrop of geopolitical tensions, the growing EURIBOR interest rate is gradually increasing the burden of corporate debt service once again, with the costs of refinancing the existing obligations and repaying new loans on the rise. Competitive pressure from Asian exporters and slower growth in demand from Lithuania’s main trading partners due to geopolitical tensions[34]
[34] Exports of goods and services are projected to grow by 2% in 2026, following a 4.2% increase in 2025. For more details, see the Lithuanian Economic Review of April 2026.
could lead to a weaker financial position for companies exporting goods of Lithuanian origin, and with a decline in export demand, manufacturing companies may find it more difficult to sell their existing inventory. Although the share of inventories in the structure of manufacturing companies’ current assets fell by 8 percentage points over the past two years, inventories accounted for about a fifth of total assets and nearly 38% of current assets at the end of 2024. The diminished liquidity of inventories would result in weaker short-term debt service capacity for manufacturing companies.

Corporate liquidity ratios remain close to historical averages and the debt service capacity of the most vulnerable sectors remains at a safe level.

Chart 9. Liquidity ratios (left-hand panel) and debt-to-EBITDA ratio (right-hand panel) of Lithuanian NFCs

Sources: State Data Agency, Lietuvos bankas and Lietuvos bankas’ calculations.

Notes: The dotted lines indicate the average values for 2005–2025. The current ratio is the ratio of current financial assets to current financial liabilities. Cash ratio is the ratio of cash to current liabilities. Debt includes long-term and short-term debt obligations and debts to credit institutions. EBITDA is earnings (loss) before income tax, financial performance, depreciation and amortisation. Names of economic activities are abbreviated.

In conclusion, geopolitical tensions and economic uncertainty may adversely affect the financial standing of companies and their ability to meet their obligations. The manufacturing, transport and agricultural sectors, which are more sensitive to export demand, energy prices and energy supply disruptions, face the greatest risk of immediate pass-through; but that vulnerability may spill over to other companies through secondary channels due to interconnections or persistent energy supply disruptions. The risk of default is mitigated by low debt levels, good loan portfolio quality as well as sufficient debt service capacity and liquidity buffers. However, should the unrest in the Middle East persist for an extended period, the level of risk would increase significantly.

1.3.2.Resilience of the household sector

As wages continued to rise, the financial situation of households has remained strong in recent years. The annual growth in wages (after taxes) remained robust, reaching 7.6% in the fourth quarter of 2025; however, as inflation rose, real wage growth slowed to 3.7% in 2025. Rising wages have strengthened households' capacity to save. The share of households saving stood at 60% in Q1 2026, close to a record highs and 10 percentage points above the 2022 level, when higher inflation eroded the ability to save (see Chart 10, left-hand panel). Actual data also point to a strong household capacity to save:[35]
[35] The deposit-to-GDP ratio rose from 32.5 to 34% over the year. The annual deposit growth stood at 11%, and total financial assets also increased by about 11%. The growth in pension fund assets (18%) contributed significantly to the increase in financial assets. Their share will decrease significantly in the second quarter of 2026, after Lithuanians withdraw funds following the 2nd pension pillar reform. The volume of investment funds and listed shares held by individuals also grew rapidly (by 28 and 22% respectively).
deposits outpaced the national GDP and net household assets increased from 73% to 75.6% of GDP despite financial liabilities growing slightly faster (12%) than assets (11%). As interest rates fell, the annual growth of overnight deposits accelerated again (16% in March 2026), while the annual growth of deposits with agreed maturity declined slightly (by 1% respectively; see Chart 10, right-hand panel). The growth of the share of the population saving stabilised in 2025 as inflation rose again; therefore, higher energy prices resulting from geopolitical tensions are likely to diminish the population’s ability to save. It should be noted that the negative inflationary and economic implications for households could be mitigated by funds withdrawn from the 2nd pension pillar if households used them to repay existing loans or cover higher costs; however, using them to take on new obligations or invest in the real estate market could, on the contrary, increase indebtedness and simultaneously exacerbate housing price imbalances (for more details, see Section 1.4 and Box 2).

Household saving stabilised as inflation rose and time deposits stopped growing as interest rates fell.

Chart 10. Ability of households to save and wage growth (left-hand panel), development of household deposits by type (right-hand panel)

A graph of growth and growth AI-generated content may be incorrect.

Sources: State Data Agency, Lietuvos bankas and Lietuvos bankas’ calculations.

Notes: The share of households that save is calculated by combining households that assess their current financial situation as ‘save a lot’ and ‘save a little’ and then calculating the 3-month moving average of this sum.

Significant borrowing at variable interest rates increases the sensitivity of households to potential changes in interest rates. In 2025, households borrowed heavily for both housing purchases and consumption (see Section 1.2 for more details). The majority of households borrow for housing at variable interest rates although, following the introduction in 2025 of the requirement for lenders to offer at least two types of interest rates (variable and fixed) and the simplification of the refinancing procedure, the share of fixed-rate loans in new housing loans has increased significantly (see Section 2.2 for more details). With strengthening expectations of monetary policy tightening and rising EURIBOR (see Section 1.1 for more details), debt servicing costs are already increasing, and may rise further, for a significant share of households with housing loans.[36]
[36] Currently, EURIBOR is approximately 0.4 percentage points higher than before the conflict in the Middle East began. For a new loan of average size (€130,000) with an average term of 25 years, this translates to a €28 higher monthly payment (calculated using the annuity method).
As EURIBOR rose in 2023–2024, an increase in households’ current LSTI ratio for housing loans was already observed. The most affected were the 20% of borrowers with the lowest incomes, as their LSTI ratio approached the maximum permissible limit of 40% (see Chart 11, left-hand panel). Meanwhile, this indicator did not increase in the consumer loan portfolio owing to the prevailing fixed-rate lending. Nevertheless, the quality of the housing loan portfolio at banks hardly deteriorated during that period: the share of non-performing housing loans rose from 0.5% (Q1 2023) to 0.8% (Q1 2024),[37]
[37] By the fourth quarter of 2025, this indicator has already fell to 0.7%. For more on loan quality, see Section 1.5.1.
although overall, according to banks, the share of households with elevated credit risk increased (see Chart 11, right-hand panel). It should be noted that about a fifth of borrowers have renegotiated their loan terms since 2025 and reduced their loan margin (see Section 2.2 for more details), so they are better placed to withstand a further rise in EURIBOR).

As interest rates rise, housing loan repayment costs for households increase, but this does not lead to insolvency problems for most borrowers.

Chart 11. Dynamics of the LSTI indicator of existing household loans by income quintile (left-hand panel), development of household loan quality and 6-month EURIBOR (right-hand panel)

A graph of different colored lines AI-generated content may be incorrect.

Sources: Lietuvos bankas and Lietuvos bankas’ calculations.

Notes: Problem household loans are loans with increased credit risk and impaired household loans. The share of loans is compared to the relevant loan portfolio. The 6-month EURIBOR is shown as a 3-month moving average.

Amid ongoing geopolitical tensions and economic uncertainty, household resilience remains strong. The RLR also contribute significantly to resilience of borrowers by limiting excessive household borrowing and associated risks (for more details, see Chapter 2 Financial stability strengthening). Given that inflation and EURIBOR are currently projected to rise less than during the previous energy crisis (see Section 1.1 for more details), the household sector is likely to remain resilient. A more significant risk to financial stability could arise in the event of a deeper and more persistent crisis, which would severely worsen the financial situation of households and their ability to meet their obligations to credit institutions. The significance of risk would also increase if the growth rates of consumer and housing loans remained robust or accelerated further, raising the level of household indebtedness and the weight of these exposures on the balance sheets of credit institutions.

1.4.Trends in housing and CRE markets

The housing market activity was elevated in 2025 and is not expected to moderate in 2026. The number of housing units sold in 2025 was one-fifth higher than in 2024 and was surpassed only in 2021, when market activity reached a record high (see Chart 12, left-hand panel). Demand remained strong at the start of 2026, with the number of transactions continuing to exceed the long-term trend by 10–15%. Vilnius County stood out for its high volume of transactions: in 2025, market activity in the city was 19% higher and in the surrounding region as much as 24% higher than the trend of the past decade. The growth of housing markets on the outskirts of towns is a feature common to all major Lithuanian cities and reflects a pattern of urban sprawl, whereby urban expansion occurs more in breadth than in density. Demand for housing is not expected to decline in the near future and will continue to be supported by the still relatively favourable level of housing affordability, as well as the withdrawal of funds from the 2nd pension pillar (see Box 2 for more details).

Reflecting strong demand, the annual rate of growth of house prices accelerated and was above 10%.

Chart 12. Monthly number of housing transactions in Lithuania in 2000–2026 (left-hand panel) and annual change in housing sales prices (right-hand panel)

A close-up of a graph AI-generated content may be incorrect.

Sources: State Enterprise Centre of Registers, State Data Agency, Ober–Haus and LB RSHPI.

Note: HPI – housing price index; LB RSHPI – repeat sales house price index of Lietuvos bankas.

Housing demand is driven primarily by mortgaged housing purchases, both for investment and for personal use. As borrowing costs have fallen, the role of credit in the housing market has grown: in 2024, loans were used to finance 54%, 44% and 36% of housing purchases by households in Vilnius, Kaunas and Klaipėda respectively,[38]
[38]In terms of the number of transactions.
and these shares rose to 60%, 50% and 44%, respectively, by the end of 2025. On the other hand, as market activity increased, the buyer profile remained largely unchanged, with purchases for personal use consistently accounting for about two-thirds of the market and the remaining third of transactions being for investment purposes.[39]
[39]Transactions are considered investment transactions when the value of the residential property being purchased by a household is lower than at least one property already owned as well as residential property purchases by companies.
Vilnius stands out for its high volume of investment transactions (40% of housing units in the capital are purchased for investment purposes). The amendments to the RLR, which will take effect in August 2026, will tighten the requirements for loans for secondary housing so the share of mortgaged investment transactions is expected to drop. Although anticipation of stricter standards may incentivise investors to act before they take effect, no significant change in investment demand has so far been observed across cities.
House price imbalances have widened, making the housing market more vulnerable to shocks. As demand has risen, housing prices have begun to increase more rapidly: at the start of 2026, they were growing at an annual rate of 12–15%, i.e. roughly twice as fast as a year earlier (see Chart 12, right-hand panel). In the first half of 2026, the growth of housing prices is expected to exceed 10%, but if prices continue to outpace wages (up by 8% annually[40]
[40] According to the macroeconomic wage forecast of Lietuvos bankas of April 2026, the growth will be 8% in 2026.
), they may eventually start to constrain market activity. As households' expectations of homeownership remain strong, the divergence between the growth of housing sale prices and rental prices has persisted: according to the State Data Agency, the latter are rising at roughly half the pace (about 5% annually in the first quarter of 2026). With housing prices rising faster than rental prices and household incomes, housing price overvaluation reached 7% by the end of 2025 (compared to 4% a year earlier).

Prepared by Daumantas Skinkys

The withdrawal of funds from the 2nd pension pillar, which began in 2026, will affect the financial situation of Lithuanian households, the housing market and bank balance sheets. According to data for the first quarter of 2026, 514,000 persons, or 37% of all participants, withdrew from the 2nd pension pillar. The amount withdrawn during the first wave totalled €4.2 billion (of which €2.9 billion was paid to households and €1.3 billion was transferred to Sodra). The total amount represents 41% of pension fund assets (or about 4.9% of GDP, with the portion going to households amounting to 3.4% of GDP). Nine out of ten withdrawals were for amounts of up to €10,000, and younger residents were more likely to opt out, with half of those aged 27–30 withdrawing from the scheme.[41]
[41] Atviras Seimas. 29 April 2026 Meeting of the Committee on Social Affairs and Labour. Time stamp: 01:52:
A further significant wave of withdrawals is expected right before the withdrawal window closes at the end of 2027. The amount withdrawn from the pension system increases the level of liquid assets in the banking sector and also encourages some households to repay outstanding loans early or use the funds as a down payment when taking on new obligations (e.g. purchasing housing with a loan). A similar reform implemented in Estonia in 2021 provides basis to project its likely impact in Lithuania.
In Estonia, it was primarily vulnerable households with outstanding debts who chose to withdraw their funds. During the first payout window in Estonia, 20% of participants withdrew from the 2nd pension pillar.[42]
[42] By the end of 2025, 37% of participants had withdrawn from the 2nd pillar in Estonia. For more details see Reinson. H. (2026) Five years since the Estonian 2nd pension pillar reform: What have we learned?
The amount withdrawn accounted for a quarter of the assets of pension funds (€1.1 billion, or 3.7% of GDP).[43]
[43] The total amount withdrawn from pension funds during the year was €1.3 billion (before the 20% income tax deduction), or 4.6% of GDP.
Those who withdrew shared common characteristics: their marginal propensity to consume[44]
[44] Marginal propensity to consume is the ratio of the change in consumption expenditure to the change in disposable income when disposable income increases by one unit.
was higher (by 5 percentage points, than those remaining in the system)[45]
[45] Meriküll, J. (2025) The impact of early pension withdrawals on household finances and inflation. Eesti Pank Working Paper No. 4/2025, p. 20.
; they were more likely to receive disability benefits (33% compared to 19% among those staying); they were also more likely to have consumer loans (51% and 21% respectively); and they had more often experienced debt collection (7% and 3% respectively). In addition, these individuals were less likely to have other investments (18% compared to 27% among those who stayed).[46]
[46] Bulõgina, T. and Kukk, M. (2025) How the large-scale early withdrawals from private pension plans were used: insights from young adults. Baltic Journal of Economics, 25(2), pp. 255–289, p. 263.
In Lithuania, a higher withdrawal rate was expected among individuals who had suspended their savings in 2019 (about 10% of participants[47]
[47] At the end of 2025, active savers accounted for about 55% of participants, while passive savers, that is those who did not make regular contributions to a 2nd-pillar pension fund, accounted for about 35% of savers.
), whose amounts available for withdrawal are slightly lower (the average is €3,800, while for those who did not suspend their savings, it is €4,500[48]
[48] Projection for the fourth quarter of 2025 based on micro dataset on pension fund participants from the first half of 2023. The calculations use data on pension fund performance and State Data Agency’s data on wages.
). However, Sodra data for the first quarter of 2026 show that individuals who had accumulated larger amounts also withdrew funds, with the average amount withdrawn standing at €5,400.
The majority of the money withdrawn in Estonia was not invested but remained in bank current accounts or was used for consumption and debt repayments. One year after the first wave of withdrawals, about 50–60% of the funds remained in bank deposits, about a quarter was used to repay consumer loans and about 15% was spent on consumption. Although a short-term increase in investments in higher-risk assets (e.g. stocks) was observed, this effect was minor and temporary.[49]
[49] Meriküll, 2025, p. 18–19.
As residents repaid their consumer loans early, the consumer loan portfolio of Estonian banks decreased by about a quarter within a year of the start of the withdrawals (in the third quarter of 2022). The Estonian researchers do not directly analyse the impact of the withdrawn funds on housing market activity but noted that no statistically significant effect on the credit portfolio was found.

Withdrawals from the 2nd pension pillar will stimulate the real estate market, but only about 6% of households with pension savings will be eligible to use these funds to obtain a mortgage.

Chart A. Breakdown of funds accumulated by individuals in the 2nd pension pillar (left-hand panel), annual number of housing transactions and projections by scenario (right-hand panel)

A close-up of a graph AI-generated content may be incorrect.

Sources: State Data Agency and State Enterprise Centre of Registers.

Notes: The left-hand panel shows a projection for the fourth quarter of 2025 based on micro dataset on fund participants from the first half of 2023. The calculations use data on pension fund performance and State Data Agency’s data on wages; the x-axis is shortened; the right-hand panel shows calculations based on scenarios A (intensive), B (moderate) and C (mild), assuming that 20, 10 and 5% of households not restricted by the RLR, which will take effect in August 2026, participate in the 2nd pension pillar. The red bars indicate additional demand due to withdrawn funds. Other assumptions: (1) The 2020–2025 average, i.e. 46,000 housing transactions, is used to derive the baseline projection for 2026–2027; (2) it is assumed that households with 1 or 2 adults account for 40% and 60% of the buyer flow respectively; (3) it is assumed that only those households saving in the 2nd pillar with an average age of no more than 45 will purchase housing; (4) assumption is made that the household has no additional savings.

Depending on the propensity of individuals to invest funds withdrawn from the 2nd pension pillar into real estate, housing sales could increase by 3–10 percentage points in 2026–2027. By the end of 2025, Lithuanians had accumulated approximately €10.6 billion in the 2nd pension pillar. After deducting state support and Sodra contributions, the total amount available for withdrawal from the 2nd pillar amounted to €6.5 billion, with a median of €3,400 (see Chart A, left-hand panel). Household-level simulation results show that approximately 50,000 households, or 6% of savers, would be eligible[50]
[50] Households are considered financially unconstrained if they have a sufficient down payment to purchase a 50-square-meter home and meet the RLR requirements that will take effect in August 2026.
to use the withdrawn funds to purchase housing with a loan.[51]
[51] The calculations take into account changes in the RLR regulation in 2026.
Depending on the scenario, specifically the share of these households that would choose to withdraw funds and use them to purchase real estate, housing sales in 2026–2027 could increase by 3–10 percentage points (see Chart A, right-hand panel), and an additional €0.4–1.2 billion in new housing loans could be granted. As the example of Estonia shows, the reform may not have a stimulating effect on the housing loan portfolio as some individuals will use the withdrawn funds to repay existing mortgages rather than solely as a down payment to take on new obligations.

Household indebtedness in Lithuania is low, and housing affordability is relatively stable. Lithuania’s housing loan market remains shallow: mortgage debt-to-GDP ratio stood at 18% in the fourth quarter of 2025 and was nearly half the euro area average (34%). The ratio of house prices to income in Lithuania has increased by 10–15% since 2015,[52]
[52] Calculations use disposable household income.
but the affordability has deteriorated less than, for instance, in Portugal or the Netherlands, where it has gone down by 40–70%. Studies show that higher credit volumes can stimulate housing demand and undermine affordability.[53]
[53] For instance, Ryan-Collins, J., Lloyd, T. and Macfarlane, L. (2017) Rethinking the Economics of Land and Housing.
This relationship is illustrated by Germany, where the rise in mortgage debt between 2015 and 2022 coincided with a period of declining affordability (see Chart 13, left-hand panel). Nevertheless, the relationship between credit and housing affordability is not strong. In fact, in the euro area countries that recorded the largest declines in mortgage debt-to-GDP ratio between 2015 and 2025, housing affordability deteriorated the most.[54]
[54] Portugal (-23 percentage points), the Netherlands (-22 percentage points), Ireland (-19 percentage points) and Spain (-22 percentage points) have significantly reduced the ratio of housing loans to GDP over the past decade, but at the same time, the ratios of housing prices to income have increased by 63, 33, 19, and 20 percentage points respectively.

Changes in housing affordability in the euro area were mostly driven by shifts in housing supply rather than changes in credit conditions.

Chart 13. Changes in housing affordability and indebtedness in selected euro area countries (left-hand panel) and changes in housing affordability and supply in euro area countries (right-hand panel)

A graph and diagram of a graph AI-generated content may be incorrect.

Sources: OECD and ECB Statistical Data Warehouse.

Notes: Calculations use disposable income; LT – Lithuania, IT – Italy, EE – Estonia, DE – Germany, FI – Finland, PT – Portugal, NL – Netherlands, IE – Ireland, LU – Luxembourg; due to the lack of data, Greece, Cyprus, Croatia and Malta are not included in the right-hand panel.

A higher housing supply is associated with better affordability. In euro area countries where supply grew more rapidly, affordability improved or at least deteriorated to a lesser degree (see Chart 13, right-hand panel). In 2022, Italy, France and Finland stood out in the euro area for their high housing supply (about 0.6 dwellings per capita), while Ireland and Luxembourg stood out for their housing shortages (about 0.4). Given limited supply and a growing population, it was in Ireland and Luxembourg that affordability deteriorated the most between 2011 and 2022. Mainly due to emigration, the number of homes per capita in Lithuania increased from 0.45 to 0.52 between 2011 and 2022, reaching the euro area average. The population of Lithuania began to grow since 2022, but the accumulated supply buffer allowed for the absorption of new demand and ensured relatively stable housing affordability. At the beginning of 2026, housing affordability deteriorated slightly, but its level remained close to the long-term trend: the ratios of housing prices to annual net income across Lithuania and in Vilnius stood at 6 and 7 respectively and remained below the 2015–2025 average (6.5 and 7.5).

As demand outpaced new supply, the stock of completed housing on the market declined. Supply on the primary market of Lithuania’s majour cities reached 8,800 homes in April 2026 and, due to the spring surge, was 14% higher than a year ago (see Chart 14, left-hand panel). However, signs of strain are mounting on the primary market of Vilnius, with as 60% of the housing units listed in advertisements not yet completed.[55]
[55]According to the data from UAB Realco, completed housing units accounted for 40% of the housing supply in the primary market of Vilnius in the first quarter of 2026, while units not yet started and currently under construction accounted for 16% and 44% respectively.
The pace of new construction in Vilnius accelerated in 2025 as construction began on a total of 6,700 housing units (5,800 in 2024; see Chart 14, right-hand panel). However, compared with the trend up to 2022, with the annual population growth in the capital having doubled, this pace of construction is only just beginning to adequately meet the increased demand. The situation may also be complicated by the fact that not all projects currently under construction may be completed. If the conflict in the Middle East ultimately fuels construction cost inflation, some developers may postpone their projects.

Construction of new housing has accelerated, but Vilnius may soon face a shortage of completed housing units.

Chart 14. Housing supply in the primary housing market (left-hand panel) and increase in apartment supply and population in Vilnius (right-hand panel)

A close-up of a graph AI-generated content may be incorrect.

Sources: UAB Inreal, State Data Agency and territorial health insurance funds.

Notes: The left-hand panel shows that about a fifth of the homes offered for sale in Vilnius have already been reserved, while about 40–50% have been reserved in Kaunas and Klaipėda (a total of about 2,000 homes). Both homes under construction and those not yet started are included in active listings.

The exposure of banks to the real estate market increases their sensitivity to fluctuations in this market. Banks in Lithuania are the main providers of funding for real estate activities. At the end of 2025, real estate funds managed assets worth more than €2 billion, while banks had granted approximately €15 billion in housing loans and an additional €5 billion in CRE loans. In total, loans for real estate acquisition and construction account for 61% of credit extended by banks to the real economy (see Chart 15, left-hand panel). Credit institutions also widely use real estate as collateral when granting loans as about 65% (€11 billion) of loans to businesses are secured by commercial real estate[56]
[56]According to the broad definition in the ESRB Recommendation ESRB/2019/3, CRE loans include loans to legal entities secured by commercial and residential RE as well as by land and some types of unfinished structures.
and the level of this type of collateralisation is one of the highest in the EU (see Chart 15, right-hand panel). This means that if the imbalances that have built up were to trigger a major correction of real estate prices, the quality of collateral would deteriorate and banks might begin to restrict lending. Eventually the decline in investment would also negatively impact economic growth. Although the probability of this risks materialising is low, its impact would be significant.

Banks are exposed to the real estate market both through loans granted for real estate activities and through real estate used as loan collateral.

Chart 15. Share of RE-related loans in the bank portfolio of credit to private non-financial sector (left-hand panel) and share of bank loans to businesses with RE collateral in the EU (right-hand panel)

A close-up of a graph AI-generated content may be incorrect.

Sources: Lietuvos bankas and State Data Agency.

Notes: The left-hand panel shows the share of loans by type in the total bank portfolio of loans to the private non-financial sector; the right-hand panel shows a sample of EU countries, excluding Bulgaria, Hungary, Ireland and Spain.

Investment in CRE remains subdued, constrained by a lower risk premium. The risk premium for CRE investments remained largely unchanged in 2025 and was nearly 3 percentage points lower than in the period prior to the start of monetary policy tightening (see Chart 16, left-hand panel). As investors turned to more attractive alternatives, the volume of investment transactions in 2025 was close to a decade low. With capital flows shifting away from the office segment, investment in industrial and retail properties increased. In addition, the share of investment attributed to Kaunas increased (accounting for about 30% in 2025, compared with an average of 10% in 2015–2024). Although the volume of investment transactions remains low, cheaper borrowing has provided incentives to carry out lower-value transactions. Including these recent transactions, the market is already quite active, with the number of CRE sales transactions being 30% higher in 2025 than in 2024.

After several shocks, investment in CRE contracted, but a widespread price correction was avoided.

Chart 16. CRE risk premium and investment volume (left-hand panel) and sales prices (right-hand panel)

A close-up of a graph AI-generated content may be incorrect.

Sources: Refinitiv, CPB Real Estate Services, ECB Data Warehouse, State Enterprise Centre of Registers and Eurostat.

Notes: The industrial segment is defined as CRE for production and logistical purposes. The risk premium is the difference between CRE rental rates and the yield on 10-year Lithuanian government securities in the final quarter of the relevant year.

Despite slower price growth, moderate price imbalances remain in the Vilnius office segment. Unlike in the euro area as a whole, where CRE sales prices fell by around 10%, CRE prices in Lithuania continued to rise following a stop in 2024 (see Chart 16, right-hand panel). On the other hand, the office segment is more vulnerable due to excess supply: for instance, prices of prime offices in Vilnius have fallen and remain about 5% lower compared with the peak of 2024. As price growth slowed, overvaluation in this segment[57]
[57]Calculations are based on the development of relative market indicators (for more details see Komercinio nekilnojamojo turto rizikų stebėsenos sąrangaKomercinio nekilnojamojo turto rizikų stebėsenos sąrangaKomercinio nekilnojamojo turto rizikų stebėsenos sąranga).
decreased from 20% to 9% over two years. The price imbalance is driven by the increase in the property sales prices, which has outpaced the increase in rents and employment level (in 2015–2025, the working population in Vilnius increased by 25%, the rent of A-class offices by 30% and the sales price by more than 100%).

The vacancy rate for office space in Vilnius remains elevated, but new construction has slowed as developers have adapted to weaker demand. Compared with other CRE, the office segment has stood out for its robust development over the past decade: since 2015, the stock of office space has increased by 200% (retail and industrial space by 30% and 125% respectively). Amid the challenges of hybrid work, demand has not kept pace with new supply. Despite the slowdown in development (see Chart 17, left-hand panel), the vacancy rate for offices in Vilnius remained at 10% at the beginning of 2026, while that for retail and industrial space stood at 1% and 4% respectively. In CRE segments with higher vacancy rates, rental rates have risen more slowly since 2022 (see Chart 17, right-hand panel). This has reduced real estate managers’ revenues and increased downward pressure on prices for these properties. On the other hand, no rent price correction has been observed even in the more vulnerable segments, indicating that property managers are not facing serious difficulties.

Due to oversupply in the Vilnius office segment, the risk of price correction remains elevated.

Chart 17. CRE stock (left-hand panel) and relationship between vacancy and rental rates (right-hand panel)

A graph of a graph of a graph AI-generated content may be incorrect.

Source: CPB Real Estate Services.

Note: In the left-hand panel, annual growth rates are calculated using a 12-month moving average; in the right-hand panel, data are presented for 18 different CRE segments in Vilnius, Kaunas and Klaipėda.

The financial system is resilient to CRE market shocks, as banks extend credit to safer CRE projects. CRE loans can be divided into two groups based on risk: loans to finance CRE construction or purchase for own use and loans to construct or purchase premises for lease. Loans for lease are often riskier, as the ability to repay them is closely linked to the real estate market cycle and lease profitability.[58] The risk profile of Lithuanian banks’ CRE loan portfolio is low, with loans for rental properties amounting to €0.8 billion, or merely 2% of the total loans extended to the private non-financial sector. Furthermore, as borrowing costs rose, banks reduced lending to the riskier segment: between 2022 and 2025, the portfolio of loans for rental purposes grew by 30%, compared with 80% for loans for own use (see Chart 18, left-hand panel). CRE intended for lease in Lithuania is also financed by real estate funds; however, due to the low prevalence of open-end funds (see Chart 18, right-hand panel), they do not currently pose a risk to financial stability.[59]
[59]For more details on the real estate investment fund sector, see NT fondai Lietuvoje augo kaip ant mielių.

Risks associated with residential and commercial real estate differ cyclically: the housing market faces an upside risk of excessive price growth due to elevated demand, while the office segment in Vilnius is exposed to the risk of price correction due to oversupply. Activity in the housing market is strong and is expected to continue growing due to funds withdrawn from the second pension pillar. In case of a supply and demand mismatch, price imbalances may grow, and the housing market’s vulnerability to shocks may increase. On the other hand, low household indebtedness and sound finances reduce the likelihood of risks materialising (see Section 1.3 for more details). With the pace of construction and price growth slowing, the level of risk in the CRE segment has remained broadly unchanged over the year, but price imbalances still pose a risk of a Vilnius office price correction. Nevertheless, the situation in other CRE segments is favourable, with no imbalances observed. Furthermore, with banks lending to the safest CRE projects, the quality of the loan portfolio is good. This is also reflected in the historically low level of non-performing loans at banks (less than 1% at the end of 2025).

Bank exposures to higher-risk CRE are not significant and the risk level of real estate fund investment is mitigated by the limited prevalence of open-end funds.

Chart 18. Portfolio of bank loans secured by commercial real estate (left-hand panel) and value of assets managed by real estate funds by fund type (right-hand panel)

A graph of a graph of a graph of a graph of a graph of a graph of a graph of a graph of a graph of a graph of a graph of a graph of a graph of AI-generated content may be incorrect.

Sources: LRDB and Lietuvos bankas.

1.5.Banking sector developments and resilience

1.5.1.Banking sector developments

The performance of the Lithuanian banking sector was robust in 2025: although profitability declined, it remained high significantly exceeding the EU average (see left-hand panels in Charts 19 and 20). In 2025, net interest income was 4.6% lower (13.9% lower after excluding the impact of the Revolut Group[60]
[60] Due to the Revolut Group’s significant growth, active expansion of its operations in various EU countries and resulting substantial impact on various banking sector indicators, certain development trends are assessed after excluding the Revolut Group factor.
) compared to 2024 and this was mostly due to the prevailing lower interest rate environment. Nevertheless, high profitability continued to be supported by the substantial amount of funds held at the central bank, which generates risk-free returns,[61]
[61] The ECB’s deposit facility rate shows the return banks receive on overnight deposits held at the central bank. The deposit facility rate was last reduced in June 2025 and stood at 2% since then.
as well as rapidly growing lending and loan interest income exceeding deposit interest expenses.[62]
[62] The net interest margin, which indicates how efficiently banks generate returns based on interest earned and paid, decreased by 0.9 percentage points over the year (to 2.6%), but remained well above the levels recorded prior to the ECB’s 2022 rate hike.
Profit of the banking sector was also positively impacted by rapidly growing net fee and commission income (52.7%; or 6.2% excluding the impact of the Revolut Group). All these factors, including the increased volume of equity and assets, which had a negative impact on profitability ratios, resulted in high, albeit declining, profitability ratios. In 2025, the return on equity and return on assets stood at 17.2 and 1.3% respectively[63]
[63] In 2024, the return on equity and return on assets stood at 21.5 and 1.6% respectively.
and significantly exceeded the EU average.[64]
[64] According to the EBA data, average return on equity and return on assets in the EU/EEA stood at 10.4 and 0.7% respectively in 2025. 
The banking sector continued to maintain a high quality of its loan portfolio. The favourable financial standing of NFCs and households, low indebtedness and conservative lending practices have resulted in a low share of non-performing loans which stood at 0.8% at the end of 2025. The share of non-performing loans of NFCs fell to 1.1% over the year, while the shares of housing and consumer loans remained largely unchanged at 0.7% and 2.3% respectively. The share of loans with a significant increase in risk since initial recognition[65]
[65] Loans with significantly increased credit risk comprise Stage 2 loans that have had a significant increase in credit risk since initial recognition but are not impaired.
decreased by 0.5 percentage points to 7%. This was mainly driven by a 1.3 percentage point decrease (to 9.1%) in the share of these loans within the portfolio of NFC loans (see Chart 19, right-hand panel). On the other hand, the share of higher-risk household loans increased over the year:[66]
[66] It should be noted that the increase in the share of higher-risk loans to households was also driven by certain changes in loan assessment methodology.
for loans secured by residential real estate and consumer loans, these shares amounted to 9.3% and 10.1% respectively, i.e., were 0.5 and 1.7 percentage points higher than a year ago, but essentially in line with pre-pandemic levels. It is worth noting that in 2026, the rise in energy prices and uncertainty stemming from the conflict in the Middle East may lead banks to adopt a more cautious approach when assessing borrowers’ financial standing, potentially resulting in a higher share of higher-risk loans, while weaker economic performance could also contribute to an increase in non-performing loans.

Although the profitability of the Lithuanian banking sector declined, it remained high, and the quality of the loan portfolio continued to be sound.

Chart 19. Key items of bank income and expenses for 2024 and 2025, compared to equity (left-hand panel) and shares of loans with significantly increased credit risk and non-performing loans to the private non-financial sector (right-hand panel)

Sources: EBA, Lietuvos bankas and Lietuvos bankas’ calculations.

Notes: Key income and expense items for Lithuanian banks are presented after excluding the Revolut Group; HH – households.

Although the profitability of less significant institutions increased slightly, their performance indicators remain considerably weaker than those of systemically important institutions. In 2025, return on assets of less significant institutions increased by about 0.1 percentage points (to 0.7%) over the year, broadly aligning with the EU/EEA average. However, it remained nearly half that of significant institutions operating in Lithuania (see Chart 20, left-hand panel). The cost-to-income ratio at less significant institutions increased slightly over the year to 74.6%, while it stood at 41.4% at significant institutions. A high cost-to-income ratio indicates low operational efficiency which reflects lower service diversification, insufficient scale of services provided, higher funding costs and riskier customer base. Due to the concentration of their loan portfolios in higher-risk loan segments,[67]
[67] For instance, loans to SMEs and for consumption and other purposes at less significant institutions account for 97% and 83% respectively of the portfolios of these loans to NFCs and households, while they stand at 50% and 29% respectively at significant institutions.
less significant institutions also recorded higher ratios of non-performing loans (5.5%) and loans with increased risk (12.9%), while for significant institutions these ratios stood at 0.6% and 7.5% respectively. To compare it with other countries: in the fourth quarter of 2025, the share of non-performing loans at less significant euro area institutions averaged 2.8%, while Lithuania ranked fifth among euro area countries with the highest ratios. Given that the overall liquidity and capital adequacy ratios of these institutions are also maintained with substantially lower buffers than those of significant institutions. Therefore, increasing the resilience of less significant institutions to potential shocks remains important.

Increased investments in debt securities indicate a slightly higher risk of potential losses due to market corrections. A higher risk exposure is faced by banks with lower liquidity reserves and a larger share of these securities in their portfolios.

Chart 20. Return on assets (left-hand panel) and breakdown of the banking sector’s debt securities portfolio by valuation method, issuer and issuer country (right-hand panel)

Sources: EBA, Lietuvos bankas and Lietuvos bankas’ calculations.

Note: IE – Ireland, FR – France, LT – Lithuania.

As banks have increased their investment in debt securities, the potential negative impact of a market price correction has grown; however, the likelihood of potential losses is low. Liquid assets and granted loans account for the largest share (83%) of assets. Meanwhile, the share of debt securities held by banks rose by 4.5 percentage points over the year and stood at 15% at the end of 2025, reaching as much as 27% of total assets for some banks. Only a small portion (6%) of the debt securities held by the Lithuanian banking sector is carried at fair value, i.e. revalued at market price (see Chart 20, right-hand panel). Risks could arise if a price correction were to occur and the bank ran short of liquid funds, forcing it to sell its debt securities before maturity, thereby incurring an impairment loss. Expectations of monetary policy tightening and growing risk of public debt sustainability (see Section 1.1 for more details) create the conditions for a potentially more significant correction of debt securities prices in the future. On the other hand, the risk of expected losses is low due to significant reserves of liquid funds, which would reduce the need to sell debt securities prematurely in an adverse situation. It should be noted that banks where debt securities constitute a larger share of assets and accumulated reserves of liquid funds are smaller face greater risk; however, this risk is also mitigated by the high concentration of Lithuanian government securities in these bank portfolios cushioning the potential negative impact of debt sustainability risk. 

Concentration in the Lithuanian banking sector is gradually declining but remains one of the highest in the EU. In terms of concentration of the loan portfolios, the Lithuanian banking sector ranks seventh among EU countries[68]
[68] Based on the latest ECB data for the end of 2024.
(in 2020, it was the fifth highest). Since 2018, with 12 new entrants of the Lithuanian banking sector, mostly specialising in the SME and consumer loan segments, concentration in these loan portfolios has begun to decline and has stabilised recently (see Chart 21, left-hand panel). Housing loans remain largely concentrated in major banks: 72.6% of the banking sector’s total housing loan portfolio is held by systemically important institutions. On the other hand, concentration in the housing loan segment has decreased over the years and continues to show a downward trend. This shift is driven by the elevated competitive pressure since 2020 as well as the simplified housing loan refinancing procedure that took effect in 2025 and a new market participant actively entering the housing loan segment. This, in turn, affects housing loan margins: since 2020, the average margin on new housing loans has decreased by 1.1 percentage points (to 1.6%),[69]
[69] Data as of February 2026.
while the interest rate gap to the euro area average narrowed from nearly 1 to 0.3 percentage points and has stabilised recently.
Given that Swedish-capital banks hold a significant market share, any correction of imbalances in Sweden could have a negative impact on Lithuania’s financial system as well; however, this risk is mitigated by weaker linkages with parent banks. Although concentration in the banking sector has decreased, Swedish-capital banks account for 40.1% of total assets in the Lithuanian banking sector and 50.9% of the total loan portfolio.[70]
[70] Excluding the impact of the Revolut Group, these shares amount to 64.3 and 58.3% respectively.
Thus, these banks continue to play a major role in the credit market. Dependence on Swedish-capital banks leads to greater sensitivity to macroeconomic imbalances in that country arising from high household and corporate debt levels[71]
[71] According to Statistics Sweden data for 2025, the debt of Swedish households and NFCs as a percentage of GDP stood at 83 and 110% respectively.  
and the prevailing high vacancy rates for CRE, particularly offices.[72]
[72] According to Riksbank data for the third quarter of 2025, office vacancy rates in different districts of Stockholm range from 8.1 to 18.3%.
Furthermore, Swedish banks raise a significant portion of their funding (42% as of the third quarter of 2025) on capital markets, making them vulnerable to potential financial market shocks. The correction of imbalances or increased funding costs driven by market volatility could prompt changes in credit and liquidity management policies at the group level. Such policy shifts could negatively affect financing conditions in Lithuania and, consequently, the entire economy. On the other hand, major Swedish banks are operating profitably and maintain capital and liquidity buffers well above regulatory requirements, indicating greater resilience to potential shocks. Moreover, the links between banks operating in Lithuania and their parent banks have changed significantly, especially compared to the period of the financial crisis in 2008–2009.[73]
[73] At the end of 2025, deposits from foreign credit institutions, measured as the importance of funding from parent banks, accounted for 2.4% of bank assets, compared to 43% at the end of 2008. 
The funding of banks operating in Lithuania is no longer dependent on parent banks and is based on domestic market deposits.
Amid prevailing geopolitical tensions and dependence on third party service providers, cyber threats remain the main operational risk to Lithuania’s financial system. Cyberattacks targeting the public sector have become more frequent recently – according to 2025 data from the European Union Agency for Cybersecurity (ENISA), this sector accounted for 38% of all attacks, while the financial sector accounted for 4.5%. Nevertheless, the geopolitical environment continues to fuel the unabated flow of attacks (including hybrid attacks) directed at other strategically important sectors as well. The financial sector is also facing an increase in cyberattacks backed by hostile states, while rapidly advancing[74]
[74] For instance, quantum computing, artificial intelligence.
and increasingly widespread[75]
[75] According to EBA data, 92% of banks used artificial intelligence in their operations in 2025, compared to 86% in 2024.
technologies may create conditions conducive to more sophisticated attacks and greater vulnerability. For instance, certain AI models can amplify cyberattacks due to their ability to execute them at machine speed and cybercriminals may have an advantage in identifying and exploiting vulnerabilities faster than the necessary security patches can be deployed. At the same time, the banking sector’s growing reliance on third party service providers increases the likelihood of systemic disruptions, particularly given the concentrated use of services of major IT service providers. In addition, in 2025, as many as a third of cyber incidents recorded by the FMPs according to DORA criteria[76]
[76] The Digital Operational Resilience Act.
were related to external service providers. It should also be noted that cyber incidents experienced by financial sector participants are dominated by distributed denial of service (DDoS) attacks (70% of all recorded incidents in 2025), the impact of which is usually short-lived and does not pose a threat to data protection. On the other hand, no reports of this type of attack have been received since August, and no significant cyber incidents have been recorded since October (see Chart 21, right-hand panel). This may indicate that the cybersecurity solutions currently used by banks are adequate for the emerging risks. However, due to rapid technological changes it is important to continuously monitor the situation and take appropriate measures to enhance cybersecurity.

International and national cooperation is strengthening the financial sector’s resilience against growing cyber risks. With the DORA Regulation entering into effect on 17 January 2025, more stringent operational resilience requirements started to apply. In light of this, Lietuvos bankas assessed whether banks had strengthened their ICT risk management, updated their internal control systems, tightened oversight of ICT service providers and implemented security testing measures. Lietuvos bankas also began conducting cyber resilience stress tests to help assess how financial institutions’ business continuity processes would function in the event of an extreme but likely scenario. Cooperation with the National Cyber Security Centre and various international institutions is also being further strengthened, both through the exchange of relevant information and by coordinating actions in the event of significant cyber incidents. In addition, banks are continuously increasing investments in strengthening the resilience of IT systems and securing the necessary IT experts, all of which contributes to ensuring the resilience of the entire financial system.

The high concentration in the banking credit market is gradually decreasing, while cyber threats remain the main operational risk to the Lithuanian financial system, although the number of significant incidents has declined.

Chart 21. Market concentration based on MFI loan portfolios (left-hand panel) and number of significant cyber incidents faced by FMPs (according to DORA criteria) (right-hand panel)

Sources: Lietuvos bankas and Lietuvos bankas’ calculations.

Note: In the left-hand panel, concentration is measured by the Herfindahl-Hirschman Index (HHI).

The Lithuanian banking sector maintains high liquidity and is backed by stable funding sources, which mitigates systemic liquidity risk. In 2025, cash and liquid funds at banks increased by a fifth over the year and accounted for a significant share (42%) of bank assets (excluding the impact of the Revolut Group, these funds decreased by 8% and accounted for 31% of assets). Furthermore, banks operating in Lithuania rely almost exclusively on deposit funding, with deposits accounting for nearly 90% of all liabilities. The majority (56%) of these deposits are attracted on the domestic market (excluding the impact of the Revolut Group, this share would amount to 92%). The deposit structure is dominated by deposits from the private non-financial sector (90%), which is considered one of the most stable sources of funding. It should be noted that banks that rely heavily on deposits from other financial institutions face a higher liquidity risk, as such depositors are more likely to withdraw funds on a larger scale during periods of stress.

The banking sector’s resilience to potential shocks is demonstrated by its strong capitalisation, with top-tier capital instruments continuing to dominate the banking sector. The total capital adequacy ratio (CAR) increased by 1.1 percentage points over the year reaching 23% at the end of 2025. The common equity tier 1 (CET1) ratio decreased slightly to 19.8% (compared to 20.2% a year ago) but remained high. On the other hand, strong capitalisation is mainly supported by larger and long-established banks: the CAR for significant institutions increased from 21.5 to 23.1% over the year, while for other institutions decreased from 20.1 to 19.0%. This indicates that capital strengthening remains important for smaller and newly established banks, particularly in a context of high uncertainty.

1.5.2.Bank solvency assessment

A solvency stress test was conducted to assess the capital adequacy of FMPs operating in Lithuania[77]
[77] The following financial market participants are assessed on a consolidated basis for the purposes of solvency testing: Swedbank AB, AB SEB bankas, AB Artea bankas, UAB Urbo bankas, AB Mano bankas, UAB SME Bank, European Merchant Bank UAB, UAB GF bankas, United Central Credit Union Group and Lithuanian Central Credit Union Group.
in the event of a macroeconomic shock.[78]
[78] It should be noted that the results obtained through stress testing are not forecasts, they represent an analysis of unlikely events, thus the conclusions presented are conditional on the scenarios used. The stress test was conducted using the SRMS model.
The exercise covers a three-year horizon (2026–2028) and is based on FMP data as at the end of 2025. The test is based on two macroeconomic scenarios: a baseline and an adverse scenario (see Table 1).
Under the baseline scenario, the Lithuanian economy would maintain moderate growth, while under the adverse scenario it would experience a three-year recession. The baseline scenario is based on Lietuvos bankas’ April 2026 macroeconomic projections.[79]
[79] Compensation per employee and housing price index are based on additional model calculations and not official projections.
It assumes that economic growth in the short term would be driven by increased household consumption (reflecting the possibility of withdrawing funds from the 2nd pension pillar) and by rising government investment. At the same time, growth would be constrained by weaker external demand and uncertainty surrounding energy prices. The hypothetical adverse scenario assumes a sharp contraction in Lithuanian exports due to international conflicts and elevated economic uncertainty. Weaker external demand would dampen activity in manufacturing and other export-oriented sectors, turning overall economic growth negative. The decline in economic activity would lead to higher unemployment and constrain household consumption. Lower domestic demand and increased uncertainty would also dampen housing market activity and lead to a fall in real estate prices.

Table 1. Evolution of the key macroeconomic indicators under the stress test scenarios (percentages)

Indicator

Actual indicator

Baseline scenario

Adverse scenario

2025

2026

2027

2028

2026

2027

2028

GDP
(annual change)

2.9

3.1

2.0

2.9

-2.3

-3.6

-0.1

Exports of goods and services
(annual change)

4.2

2.0

3.1

3.4

-5.2

-9.4

-6.2

Private consumption expenditure
(annual change)

1.9

3.8

0.3

4.7

-5.5

-7.7

-3.2

Unemployment rate
(average annual)

6.9

6.7

6.6

6.6

8.2

10.0

10.5

Compensation per employee
(annual change)

10.0

9.2

6.6

6.9

1.0

-1.3

3.0

Average annual inflation
(based on HICP)

3.4

5.1

3.0

2.5

1.7

0.4

0.2

Housing price index
(annual change)

10.8

10.6

10.4

10.0

-10.3

-8.7

-4.9

Sources: State Data Agency and Lietuvos bankas’ calculations.

Note: Data on GDP, exports of goods and services, and private consumption expenditure are at constant prices.

The results of the solvency testing show that, overall, the system of banks and central credit union groups is well capitalised and remains resilient to potential shocks, with the system-wide CAR declining only marginally under the adverse scenario (see Chart 22). Under the baseline scenario, the CAR of credit institutions would be 22.4% at the end of 2028, while it would fall to 21.1% under the adverse scenario. However, the analysis of individual institutions points to differences in the responses of significant[80]
[80] Significant institutions include Swedbank, AB, AB SEB bankas and AB Artea bankas. These banks are supervised directly by the ECB and Lietuvos bankas.
and less significant institutions included in the exercise.

The system of banks and central credit union groups is well capitalised and resilient to potential shocks, but less significant institutions are more vulnerable under the adverse scenario.

Chart 22. Change in total CAR by scenario

Sources: Bank data and Lietuvos bankas’ calculations.

Note: Minimum requirements comprise the 8% minimum capital requirement and the Pillar 2 requirement. The structural macroprudential requirements consist of the capital conservation buffer and the other systemically important institutions buffer. The total capital requirements shown comprises minimum requirements, structural macroprudential requirements, the CCyB and the sectoral SyRB requirements.

Under the adverse scenario, the aggregate CAR of less significant institutions would decline more sharply than that of significant institutions by the end of 2028 but would remain above the minimum capital requirement threshold. Less significant institutions are more sensitive to adverse macroeconomic shocks; their aggregate CAR would fall decline to 12.9% by the end of 2028, while that of significant institutions would decline to 22.0%. Nevertheless, to comply with all capital requirements, the tested institutions would need additional capital of around €65.2 million (about 1.7% of the system’s current capital level). If part of the macroprudential capital buffers were released under the adverse scenario, leaving only minimum and structural requirements in place, the additional capital need would fall to €39.2 million.

The breakdown of CAR contributions (see Chart 23) indicates that net interest income would allow the banking sector to absorb the increase in credit losses under the adverse scenario. Under the baseline scenario, institutions would continue to expand their loan portfolios over the stress test horizon, while sufficiently high profitability would allow them to further strengthen their already high CAR. Under the adverse scenario, capital growth would be constrained mainly by higher credit losses, which would amount to around €1.4 billion over the entire stress test horizon (around 4.4% of the total loan portfolio at the end of 2025). In the adverse scenario, net interest income would decline but remain sizeable, offsetting credit losses at the financial system level.

Strong net interest income would allow the banking sector to absorb higher credit losses under the adverse scenario, limiting the decline in the CAR.

Chart 23. Breakdown of financial market participants’ CAR under the baseline (B) and adverse (A) scenarios

Sources: Bank data and Lietuvos bankas’ calculations.

Prepared by Ieva Mikaliūnaitė-Jouvanceau

Changes in interest rates have varying effects on banks’ profitability, credit risk and lending developments; therefore, their impact on bank resilience in times of economic stress is not straightforward. This box analyses how alternative interest rate assumptions affect bank stress test results. The analysis is based on the adverse macroeconomic scenario used in the main exercise, with the initial macroeconomic assumptions remaining unchanged. In the sensitivity analysis, only the exogenous EURIBOR path is varied over a three-year horizon: in the baseline scenario, EURIBOR declines to 1.3%; under the high-interest-rate scenario it rises to 2.5% and in the low-interest-rate scenario it falls to 0.5% (see Chart A, left-hand panel). Bank resilience, lending developments and macroeconomic indicators are determined endogenously through the feedback loop between the banking sector and the real economy in the SRMS model[81]
[81] Naruševičius, L., & Mikaliūnaitė-Jouvanceau I. (2025). Systemic Risk Modelling System (SRMS): a macroprudential stress testing model (No. 41). Bank of Lithuania.
.

The results show that the banking sector’s CAR remains higher under the high-interest-rate scenario than under the baseline and low-interest-rate scenarios. At the end of the stress test horizon, the banking sector’s CAR would stand at 22.7% under the high-interest-rate scenario, 21.1% under the baseline scenario and 19.8% under the low-interest-rate scenario (see Chart A, central panel). This is mainly driven by higher net interest income. Although credit losses also increase in a higher interest rate environment, their negative impact is offset by stronger growth in interest income, leaving the overall impact on banks’ capital ratios positive (see Chart A, right-hand panel).

In a high-interest rate environment, higher net interest income helps absorb credit losses and supports higher capital ratios.

Chart A. Alternative EURIBOR assumptions (left-hand panel), their impact on the system-wide CAR (central panel) and the main factors behind the change in the CAR (right-hand panel)

 

 

 

Sources: Bank data and Lietuvos bankas’ calculations.

Note: Low, baseline and high refer to testing scenarios in which EURIBOR stands at 0.5%, 1.3% and 2.5%, respectively, at the end of horizon.

However, higher interest rates lead to a sharper lending contraction. The corporate loan portfolio shrinks under all scenarios due to an unfavourable macroeconomic environment, weaker investment demand and deteriorating business expectations, but this decline is most pronounced in the high-interest-rate scenario. Household lending is even more sensitive to changes in interest rates, as higher borrowing costs directly reduce housing affordability and dampen demand for new loans. As a result, under the high-interest-rate scenario, lending to households also declines at the fastest pace (see Chart B, left-hand panel).

A sharper credit contraction under the high-interest-rate scenario further dampens economic activity. Tighter credit supply constrains household consumption and business investment, while the deteriorating financial position of borrowers further reduces domestic demand. Due to the feedback loop between the banking sector and the real economy, the cumulative decline in real GDP over the three-year horizon under the high-interest-rate scenario is around 0.2 percentage points greater than under the baseline scenario, and 0.1 percentage points lower under the low-interest-rate scenario (see Chart B, right-hand panel). The results show that the  sensitivity analysis of interest rate assumptions provides additional information for assessing the interaction between the banking sector’s resilience and macroeconomic developments under stress.

Higher interest rates constrain lending and further dampen economic activity.

Chart B. Impact of alternative interest rate scenarios on the private non-financial sector loan portfolio (left-hand panel) and real GDP (right-hand panel)

Sources: Bank data and Lietuvos bankas’ calculations.

Note: The panels show the change in the loan portfolio for non-financial corporations (NFC) and households over the stress testing horizon (Q4 2025 to Q4 2028), while the real GDP panel shows the cumulative change over 2026–2028.

1.5.3.Bank liquidity assessment

The liquidity position of the system of banks and central credit union groups[82]
[82] The following institutions are included in the liquidity assessment of credit institutions on a consolidated basis: Revolut Holdings Europe UAB, Swedbank, AB, AB SEB bankas, AB Artea bankas, UAB Urbo bankas, AB Mano bankas, UAB SME Bank, European Merchant Bank UAB, UAB GF bankas, Saldo Bank UAB, AB Fjord Bank, AS Finora Group, United Central Credit Union Group and Lithuanian Central Credit Union Group.
remains strong. In February 2026, the system’s liquidity coverage ratio (LCR)[83]
[83] The LCR reflects the ability of a credit institution to meet its 30-day liquidity requirement, taking into account cash inflows, outflows and reserves of liquid assets. The LCR is defined as the ratio of liquid assets to net 30-day cash outflow.
was nearly four times higher than the minimum regulatory requirement of 100% (standing at 375%). Excluding the Revolut Group, which has a specific business model, the system’s LCR is significantly lower but still nearly triple the regulatory requirement (283% as of February 2026).

To assess the resilience of credit institutions to potential liquidity shocks, a liquidity stress test was conducted. The test was conducted using monthly data covering a one-year period (from March 2025 to February 2026), assessing the ability of credit institutions to meet a significantly increased 30-day liquidity need for each month within this period, i.e. by performing 12 separate one-month horizon liquidity assessments. This method allows for an assessment of how stable the results are over time and whether the ability of credit institutions to withstand liquidity shocks is sensitive to the choice of time period. This is particularly important because the LCR can vary significantly over the course of a year.

The system of banks and central credit union groups is capable of withstanding potential liquidity shocks. Under an adverse scenario,[84]
[84] The detailed liquidity stress testing methodology is available on the website of Lietuvos bankas.
the system’s LCR would decline significantly over the testing period (excluding the Revolut Group, the system’s LCR would have fallen to 127% at most) but would still comfortably exceed the 100% requirement (see Chart 24, left-hand panel). Although, under the adverse scenario, 3 out of 14 credit institutions would have slightly breached the minimum LCR requirement in certain months of 2025 during the testing period (the ratio would not have fallen below 87%), the data for January–February 2026 shows that all the credit institutions concerned would already be able to withstand liquidity shocks while maintaining the LCR of at least 100%.
In the event of a liquidity shock, liquid asset reserves of credit institutions would decline most significantly due to a contraction in deposits. Under the adverse scenario, a liquidity shock is tested through three main impact channels: a decline in the value of liquid assets, higher-than-normal cash outflows and lower-than-normal cash inflows. A decline in liquid asset reserves due to a potential liquidity shock would be driven primarily by a contraction in deposits (particularly uninsured and/or less stable ones)[85]
[85] Under the adverse scenario, deposits in the system of banks and central credit union groups would decline by 21%.
, which would account for about three quarters of the decline in the LCR[86]
[86] The impact of individual liquidity risk channels on the decline in the LCR under the adverse scenario was assessed using the Shapley decomposition method.
(see Chart 24, right-hand panel). Additional liquidity buffer adequacy testing showed that the total liquid asset reserves of the system of banks and central credit union groups would be sufficient to cover a decline in deposits of approximately 42% (27% excluding the Revolut Group).[87]
[87] For comparison: in terms of individual credit institutions, the largest monthly decline in deposits of 28.7% was recorded in November 2008 at the then-AB Parex bank (currently the Lithuanian branch of AS Citadele banka).

The system of banks and central credit union groups remains resilient to potential liquidity shocks, with most credit institutions able to withstand them with a cushion.

Chart 24. Distribution of the LCR of the system of banks and central credit union groups (left-hand panel) and breakdown of factors contributing to the decline in the LCR under an adverse scenario (right-hand panel)

A screenshot of a graph AI-generated content may be incorrect.

Source: Bank data and Lietuvos bankas’ calculations.

Note: In the left-hand panel, the distribution of minimum LCR shows the breakdown of the lowest LCR values for individual credit institutions over a one-year period between March 2025 and February 2026; the right-hand panel presents the breakdown of factors contributing to the decline in the LCR based on data as of February 2026.

1.6.Non-bank financial sector trends

In 2025, credit unions maintained steady growth, profitability and compliance with prudential requirements, but strengthening their resilience remains important in the current environment. Assets of credit unions increased by 14% over the year (to €1.8 billion) and accounted for 1.3% of total assets of the financial system. Credit unions actively financed SMEs and households: loans granted outpaced deposits in 2025[88]
[88] In 2025, the annual growth of loans and deposits was 18.2 and 12.5% respectively.
causing the loan-to-deposit ratio to increase by 4 percentage points over the year to 92%. It should be noted that loans to legal entities[89]
[89] At the end of 2025, they accounted for 36% of the total loan portfolio.
continued to grow faster than those to individuals, and the overall share of loans in total assets increased by 2.7 percentage points over the year (to 76%). At the same time, loan quality improved, as the volume of loans past due more than 60 days fell by 12% over the year, while the share of non-performing loans dropped by 1.1 percentage points (to 14.6%). On the other hand, net interest income declined, primarily due to rising funding costs and lower loan interest rates.[90]
[90] Due to these factors, interest expenses increased by 9.4%, while interest income decreased by 2%.
This also led to weaker financial performance as profits decreased by 26.2% over the year and amounted to €10.7 million in 2025. In terms of operational resilience, all credit unions complied with prudential requirements. However, compared to the banking sector, the CCU groups exhibit lower liquidity ratios. Furthermore, despite the sector’s relatively high market capitalisation, the CAR declined by 1.5 percentage points over the year to 16.5%, continuing the downward trend observed in 2024. This indicates that strengthening capital and liquidity, especially given the rapid growth of the loan portfolio, remains a key factor. It should be noted that both CCU groups must accumulate 1% of total assets of the LCCU, UCCU and their members in their stabilisation funds[91]
[91] Stabilisation funds administered by CCUs accumulate funds to be used for restoring solvency of group members, if necessary.
by 2028; although the share of funds accumulated over the year increased, it is still below[92]
[92] At the end of 2025, the LCCU and UCCU stabilisation funds accounted for 0.95% and 0.61% of assets of a respective CCU and its members.
the established requirement.

Due to changes in the pension system, the value of assets managed by pension funds fell sharply at the beginning of 2026, but this process does not pose a risk to financial stability.

Chart 25. Ratio of assets of non-bank financial institutions to GDP (left-hand panel) and structure of assets directly managed by institutions by location as of the end of 2025 (right-hand panel)

A graph and chart with numbers AI-generated content may be incorrect.

Source: Lietuvos bankas.

Notes: The dotted line in the left-hand panel represents April 2026 data point. The financial account data used exclude non-financial assets as well as holding companies. Financial auxiliaries include insurance brokers and agents, pension fund and CIU management companies, operators of crowdfunding and peer-to-peer lending platforms, etc. Other financial intermediaries include financial leasing companies, factoring companies, venture capital companies, etc.

When the option to withdraw funds from the 2nd pension pillar became available in early 2026, the value of assets managed by pension funds declined by more than a third. At the end of 2025, assets managed by pension funds amounted to €11.1 billion (or 13.8% of GDP; see Chart 25, left-hand panel). The 2nd and 3rd pension pillars managed 95% and 5% of the sector’s assets respectively, while the number of participants stood at 1.4 million and 0.2 million respectively. Pension funds continue to invest primarily in shares of foreign investment funds (see Chart 25, right-hand panel) and the life-cycle strategy is the main principle guiding asset allocation. In 2025, the sector’s growth was driven by rising contributions and investment returns (approximately 6% per year). However, as withdrawals from the 2nd pillar began, the sector’s assets under management contracted to approximately €7 billion (8% of GDP) in April 2026. Although some of the funds withdrawn from the 2nd pillar may be transferred to the 3rd pillar, the sector is expected to contract overall in 2026–2027. However, this process does not pose a risk to financial stability.  

The value of investment fund assets increased by 11% over the year, driven by both investment returns and new inflows. At the end of 2025, investment funds managed a total of more than €4 billion in assets. About half of the assets were held as real estate investments, while the rest consisted mainly of corporate equity instruments. The share of non-real estate investments grew significantly over the five-year period (from 30% of the sector’s assets in 2020). 2025 was marked by a fivefold increase in investment inflows from pension funds (reaching €120 million) indicating that, as the sector matures, institutional investors are becoming more actively involved. Growth was also driven by a large influx of new participants joining the funds: The number of CIU and CIUFII participants increased by 45% and 20% respectively in 2025. Overall, the risks to the financial system arising from the sector are mitigated by the low prevalence of open-end investment funds. Open-end funds have more flexible redemption requirements, so a sudden outflow of investments from them is more likely. However, open-end funds invest primarily in liquid assets (e.g. listed shares), so liquidity risks are managed.

The insurance market in Lithuania continued to grow in 2025, with written premiums increasing by nearly a tenth. The assets of insurers licensed in Lithuania increased by more than 10% (reaching €2.3 billion). The structure of investments managed by insurance companies remained largely unchanged, with government securities accounting for 47%, equities and investment fund units for 37%, and bonds for 10%. The number of non-life insurance policies issued increased by about 5% to nearly 9 million. In the non-life insurance market, the largest share of the premium portfolio was accounted for by motor vehicle insurance (about 51%), property insurance against fire and similar damage (about 24%) and medical expense insurance (16%), which posted the fastest growth in 2025. The life insurance market is dominated by unit-linked life insurance, with premiums under these policies accounting for 81% of all life insurance premiums. All insurance companies licensed in Lithuania were profitable in 2025, with their pre-tax profit totalling €115 million (up by 16%). Nearly 72% of the sector’s profits were generated by non-life insurance companies. All insurance companies met solvency capital requirements as the solvency ratio for the non-life insurance sector was 1.64, while that for life insurance was 1.97. Overall, the insurance sector remains resilient.

In 2025, Lithuania’s fintech sector[93]
[93] The fintech sector refers to the EMI and PI sector.
continued to grow, while market concentration decreased slightly. The number of companies operating in the sector remained largely unchanged over the year (totalling 117), while the total value of payment transactions in 2025 grew by 10% to over €166 billion. The three largest institutions (Paysera, ZEN.COM, Nuvei) accounted for 36% of the sector’s turnover (down from 44% in 2024). Capital positions of the companies[94]
[94] The ratio between the amount of an institution’s equity capital and its own capital requirement calculated according to supervisory requirements (the minimum ratio is 1).
remained adequate (average equity ratio of 3.2), but this ratio was below 2 for approximately 40% of institutions and one institution failed to meet the minimum requirement. In addition, about a third of fintech companies were operating at a loss, and the so-called empty shell phenomenon was also observed, with some of the loss-making institutions actually carrying out only very limited activities or imitating them without engaging in any real commercial activity. The test results show that the resilience of these firms is highly varied, with the ratio of potential losses to capital ranging from 3% to 256% and the capital of at least a few institutions could be completely depleted under adverse conditions.[95]

The crypto-asset market in Lithuania is shaped by increasingly stricter regulation and consolidation processes. From 2026, only companies with a MiCA licence will be able to provide crypto asset services as unlicensed participants had to cease operations or restructure. Regulation is bringing the crypto-asset sector closer to the traditional financial sector by increasing transparency and ensuring uniform regulation of similar activities, while simultaneously reducing the number of less-prepared companies. Furthermore, the implementation of the MiCA Regulation will significantly contribute to enhancing the resilience of sector institutions and mitigating risks. In early 2026, four companies (Robinhood Europe, Nuvei Liquidity, Coingate, and Micar assets) held a license from Lietuvos bankas authorising them to provide crypto-asset services in Lithuania and other EU Member States. Currently, the crypto-asset sector’s ties with the banking sector remain limited both in Lithuania and across Europe, but market participants are evaluating potential scenarios for strengthening this relationship and seeking measures to ensure that the integration of the sectors proceeds in a controlled manner and does not increase systemic risk.

2.Improving financial stability

2.1. Application of macroprudential measures

The CCyB rate of 1%, applicable since 1 October 2023, remains appropriate and sufficient to address the moderate level of cyclical risk currently observed in both the household and non-financial corporate sectors. The CCyB rate is set based on the level of cyclical risk, which is classified into four stages: low, moderate, medium and high. The level of cyclical risk is determined by assessing a broad range of indicators designed to gauge the level of imbalances in the financial market and the rate of growth of financial cycle indicators. When deciding on the CCyR rate, the situation of individual sectors is taken into account; if the level of cyclical risk in individual economic sectors (e.g. non-financial corporations or households) differs, the overall level of cyclical risk is considered to be the level reached by all sectors. When setting the CCyR, greater weight is given to the situation in the sector with the lower level of risk to ensure that the requirement does not have an unduly adverse impact on access to credit. The assessment of the financial cycle for the first quarter of 2026 shows that, although rapid growth is observed in both the household and corporate sectors, moderate imbalances emerged only in the housing sector due to faster-rising housing prices. The analysis of imbalances and growth indicators of individual sectors shows that the level of cyclical risk in the corporate sector is moderate and high in the household sector. This means that the overall level of cyclical risk reached by both sectors is assessed as moderate, and, in accordance with the principles governing the application of the CCyB in Lithuania, a 1% CCyB rate is applied to address this level of risk. However, the overall level of cyclical risk is continuously monitored and an increase in the CCyB rate would be considered should signs of it growing be observed.

The macroprudential capital buffers increase the resilience of banks to unforeseen shocks.

Chart 26. Macroprudential capital buffers in Lithuania

A chart with text and symbols AI-generated content may be incorrect.

 

To address the higher level of systemic risk in the housing loan market, a 2% sectoral SRB has been in effect since 1 July 2022. The sectoral SRB was introduced in response to high activity in the housing market, which led to a divergence between housing prices and fundamental values, and accelerating annual growth of the mortgage loan portfolio reflecting increasing cyclical risks. Between 2011 and 2018, housing loans accounted for a third of the banking sector’s loan portfolio but this share rose to 45% by June 2021. This change indicated the emergence of structural risks in the housing loan market. The sectoral SRB aims to ensure a sufficient capital buffer to cover potential losses in the event of systemic housing market risks materialising and to promote sustainable growth of housing credit. In accordance with the principle of proportionality, the sectoral SRB requirement applies only to institutions whose housing loan portfolio exceeds the threshold of €50 million.[96]
[96] Currently the requirement is applicable to AB SEB bankas, Swedbank, AB, AB Artea bankas, UAB Urbo bankas as well as he Lithuanian Central Credit Union and the United Central Credit Union groups. Other EU countries where banks are established and actively provide housing loans in Lithuania through their local branches also recognise and apply the 2% sectoral SRB rate to banks whose housing loan portfolio in Lithuania exceeds €50 million.
During the 2024 review, it was determined that the applicable 2% sectoral SRB rate continues to adequately address the level of sectoral risk in the housing loan market; therefore, a decision was made not to change the requirement.

The recent rapid growth in housing market activity and consumer loan portfolio as well as the potential additional stimulatory impact of regulatory changes are being closely monitored and may be addressed, if necessary, by adjusting the SRB requirement. In 2025, the gap between housing prices and fundamental values widened by 3 percentage points reaching 7% by the end of 2025. The annual growth of the housing loan portfolio reached its highest level since 2009. The portfolio of consumer loans to Lithuanian residents is also growing significantly, with the annual growth of this portfolio reaching around 18% in March 2026. Activity in the housing market may be affected by the observed active withdrawal of funds from the 2nd pension pillar and changes to the RLR. The former is likely to affect demand for consumer credit and may also impact the overall size of the household loan portfolio as some residents are likely to choose to use the funds they have withdrawn to pay off existing obligations. The impact of these changes is currently difficult to quantify and will become apparent over the next few quarters, but it will be fully assessed during the regular review of the sectoral SRB in the second half of the year. An increase in the sectoral SRB rate would be considered if the review were to find that the level of systemic risk in the housing market has increased significantly and the current sectoral SRB rate is insufficient to address it.

Borrower-based measures protect consumers from an excessive burden of financial obligations and the amendments to these measures, which will take effect on 1 August 2026, will ensure a more balanced impact on different groups of borrowers in an environment of fluctuating interest rates.

Chart 27. Currently applicable borrower-based measures and their amendments which will take effect on 1 August 2026.

 A diagram of a loan AI-generated content may be incorrect.

* Exception: The LTV may be greater than 70% (but less than 85%) where the outstanding balance of the previous housing loan(s) is less than half the value of the mortgaged real estate.

** Exception: The LTV may be greater than 70% (but less than 85%) where the outstanding balance of the previous housing loan(s) is less than half of the amount borrowed, i.e. more than half of the loan has already been repaid.

To ensure a more uniform impact of the measures, amendments to the RLR were adopted on 22 October 2025 and will take effect on 1 August 2026. The amendments to the RLR introduce a down payment requirement for first-time homebuyers of at least 10% of the value of the home being purchased. The lender will be able to apply the minimum 10% down payment requirement where the borrower enters into their first loan agreement for the purchase or construction of residential real estate and, at the time the loan agreement is concluded, neither the borrower nor any co-borrower owns or has owned any real estate in their own name within the past five years. For individuals taking out their first housing loan who already own real estate, the 15% down payment requirement will continue to apply. For those taking out a second or subsequent housing loan, the requirement for a down payment of at least 30%, which has been in effect since 2022, will continue to apply, but the existing exception will be adjusted. Following the amendments, the exception allowing the required down payment to be reduced to 15% will apply when those seeking a second or subsequent housing loan have already repaid more than half of the original housing loan amount for each loan. Currently, the exception allowing for a lower down payment applies if the outstanding balance of each existing loan, relative to the value of the mortgaged property, is less than 50%. Furthermore, to ensure a more stable impact of the requirement across the interest rate cycle, a shift to a single DSTI requirement will be made, such that the payment may not exceed 50% of income calculated using an interest rate of at least 6%. This change will ensure borrowers’ resilience to interest rate increases[97]
[97] During the last interest rate hike cycle, the average housing loan interest rate was 6% at the end of 2023,
that are likely in practice and a more even impact throughout the entire interest rate cycle.

Notably, since the beginning of 2025, the flow of second and subsequent housing loans has grown at a faster pace; however, following the entry into force of the amendments to the RLR, their share in the flow of new housing loans is likely to return to its long-term average. In 2025, the annual growth of the flow of new second housing loans reached around 70% (see Chart 28, left-hand panel), while these loans accounted for about 17% of the total flow of new housing loans in January–March 2026, up about 3 percentage points from the average share of total flow of 2025. The RLR amendments will tighten the exception applicable to second or subsequent loans, which allows borrowers to obtain a loan with a higher LTV; therefore, it is likely that some borrowers rushed to take out a second or subsequent loan before the amendments took effect.

In the second half of 2025, an increase in the average LTV and DSTI values for new housing loans was observed, and the flow of second and subsequent housing loans grew at a faster pace following the announcement of the upcoming RLR amendments.

Chart 28. Loan flow by number of outstanding loans and housing (left-hand panel), LTV (central panel) and DSTI (right-hand panel) of new housing loans

A graph with lines and dots AI-generated content may be incorrect.

Source: LRDB.

In the second half of 2025, an increase in the average LTV and DSTI values for new housing loans was observed, driven largely by a larger share of higher-value first housing loans. However, in the first quarter of 2026, LTV values began to decline again and approach the levels seen prior to the most recent cycle of interest rate hikes, while the DSTI remained elevated due to the higher EURIBOR (see Chart 28, central and right-hand panels). If, due to the protracted conflict in the Middle East, housing loan interest rates for consumers remain at higher levels for some time, the average DSTI may remain elevated for a longer period; however, the RLR amendments taking effect in August 2026 will ensure a more even impact of the measures throughout the interest rate cycle, and in a higher interest rate environment, the DSTI limit set by the RLR will place fewer constraints on borrowers.

2.2. Other measures proposed by Lietuvos bankas for the financial sector

More than a year after the amendments to the Republic of Lithuania Law on Real Estate Related Credit took effect, the volume of refinancing and loan renegotiation has more than doubled, indicating a significant increase in market activity. According to the latest data for March 2026, more than 2,700 loans have been refinanced since February 2025 for a total value exceeding €275 million, which accounts for nearly 2% of the total housing loan portfolio. In addition, more than 30,000 loans for a total value of around €2.7 billion have been renegotiated since February 2025, accounting for 19% of the total housing loan portfolio. This upward trend has been observed since the beginning of 2024, when the amendments to the refinancing procedure were initiated. Since then, 27% of the total housing loan portfolio has been renegotiated. Refinancing and renegotiation volumes in the first quarter of 2026 remain stable; in both cases, the levels are still significantly higher than they were before the legislative changes in 2022–2023 (see Chart 29, left-hand panel).

By refinancing their loans and renegotiating loan terms with their existing lenders, consumers significantly improved their housing loan terms. Since February 2025, consumers who refinanced their loans significantly reduced their margins (by an average of 0.42 percentage points) and will be able to save up to €7,000 on average over the entire loan period. Consumers also renegotiated their loan terms and reduced their margins by 0.33 percentage points on average, which will allow them to save up to €4,000 on average over the entire loan period. In total, more than 45,000 consumers already took advantage of loan refinancing or renegotiation on more favourable terms between 2024 and February 2026, which will save them a total of over €250 million over the entire loan period.

Consumers are actively taking advantage of the opportunities offered by the simplified refinancing procedure, and the share of fixed-rate loans has increased significantly compared to the total flow of new housing loans.

Chart 29. Monthly flow of refinanced housing loans and renegotiations (left-hand panel) and share of fixed-rate loans relative to the flow (right-hand panel)

A screenshot of a computer AI-generated content may be incorrect.

Sources: PRDB and MFIs.

Refinancing trends indicate that borrowers’ decisions to refinance their existing loans are primarily based on economic benefits. First, the term of refinanced loans is usually longer, and the more time remaining until the loan is fully repaid, the greater the benefit to the borrower due to the lower interest rate, making refinancing most attractive for such borrowers. Second, since more than half of refinanced loans are granted with an LTV of less than 60%, it is likely that households with lower LTV ratios, whom lenders consider less risky, are more actively taking advantage of refinancing opportunities. These households can expect more favourable terms and more competitive offers from other banks.

Following the entry into force on 1 May 2025 of the requirement for banks to offer housing loans with both variable interest rates and fixed interest rates for a period of at least five years, the share of the latter has increased significantly relative to the total flow of new housing loans. This requirement applies to banks most active in the housing loan segment, whose housing loan portfolios exceed €50 million. Between January and April 2025, the share of fixed-rate housing loans averaged 1.5%, while it was 10.1% on average in the first quarter of 2026 (see Chart 29, right-hand panel). It is precisely the banks subject to this requirement that have contributed most significantly to the growth of the share of fixed-rate loans, which shows that the regulatory changes are effective as they ensure that consumers have real choices and promote competition among lenders.

Abbreviations

AB                           public limited liability company

CCyB                     counter-cyclical capital buffer

RLR                        Responsible Lending Regulations

GDP                       gross domestic product

DSTI ratio                              Debt service-to-income ratio

EBA                                        European Banking Authority

ECB                                        European Central Bank

ESCB                                      European System of Central Banks

EEA                                         European Economic Area

EC                                           European Commission

EMI                                         electronic money institution

ES                                           European Union

Fintech                                  financial technology

FMP                                        financial market participant

CIUFII                                    collective investment undertakings for informed investors

ICT                                          Information and Communication Technologies

IT                                             information technology

USA                                        United States of America

CIU                                         collective investment undertaking

CAR                                        capital adequacy ratio

LCR                                        liquidity coverage ratio

LSTI ratio                               loan service-to-income ratio

LTV                                         loan-to-value ratio

LSEG                                      London Stock Exchange Group

MiCA Regulation                  Regulation on markets in crypto-assets

PI                                            payment institution

RE                                           real estate

MFI                                         monetary financial institution

LRD                                        Loan Risk Database

SRB                                        systemic risk buffer

HICP                                      Harmonised Index of Consumer Prices

SME                                        small- and medium-sized enterprise

IMF                                         International Monetary Fund

UAB                                        private limited liability company

SDA                                        State Data Agency

Securities                              securities

GS                                           government securities

© Lietuvos bankas

Gedimino pr. 6, LT-01103 Vilnius

www.lb.lt

The Financial Stability Review looks at the developments in the banking sector, companies and households and the situation in RE markets, identifies the key risks and challenges that could affect the operation of Lithuania’s financial system, especially banks, and the financial system’s ability to withstand shocks. The material presented in this review is the result of statistical data analysis, modelling and expert assessment. The review is prepared by Lietuvos bankas.

The cut-off date for the data used in the publication is 1 May.

Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged.

ISSN 1822-5241 (online)