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Lithuania’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

The socio-economic constraints caused by the global coronavirus (Covid-19) pandemic made 2020 an exceptional year. Performance diverged strongly across countries. Despite the imposition of strict lockdown measures that limited economic activities, the economic downturn in Lithuania in 2020 was the smallest in the Baltic region and one of the lowest in the EU – GDP contracted just by 0.8% over the year. This was facilitated by a substantive state aid package for enterprises and strong export sector. Besides, during 2020, some sectors were able to increase their added value – ICT (6%), agriculture (5.4%), manufacturing (0.8%) and real estate (0.4%).

Lithuanian banking sector consisted of 17 banks in 2020, eleven of which held a banking or specialized banking license, and six banks operated as branches of foreign bank. Two specialized banking licenses were issued during 2020 and, at the end of the year, six more enterprises applied for a specialized banking license.

The banking sector of Lithuania is dominated by subsidiaries of large Scandinavian banks. The two largest banks, SEB and Swedbank, are owned by their parent banks in Sweden. Another stake of 20% belongs to Luminor Bank, which is a subsidiary of a Swedish holding company. The other three banks, AB Šiaulių bankas, UAB Medicinos bankas and Revolut Bank UAB, are significantly smaller in size and belong to groups of local and foreign investors. Scandinavian capital also prevails among the branches of foreign banks. There are 60 credit unions united by the Lithuanian Central Credit Union and the Joint Central Credit Union. The Lithuanian government has no stake in the banking sector.

Changing consumers’ habits and raise of financial technologies have fueled banking sector digitalization, and the pandemic has further reignited the need for new digital solutions. According to the European Central Bank, 54% of card payments in Lithuania in 2020 were contactless (average for the EU – 38%). The priority of banks has shifted even more towards facilitating digital transition. During 2020, the volume of video consulting grew sharply, many clients took out mortgages without even leaving their homes, and new contactless payment methods were introduced: key chains, bracelets, shirt cufflinks, stickers.

2020 was marked by a record growth in bank deposits, the highest over the entire observation period. Deposits increased by 28%, and at the end of the year amounted to €31.9 billion (non-financial corporations – an increase of 38%; households – 20%). Uncertainty and lack of spending opportunities sparked an increase in the savings rate in the euro area by 20%, and Lithuania is no exception. Moreover, the rise in corporate profits from the sold inventories, as well as government support for businesses during the pandemic, also contributed to the exceptional growth in deposits.

In the context of the coronavirus pandemic, the focus of bank lending was on mortgages, which continued to grow rapidly, while corporate lending declined. During 2020, the loan portfolio increased by 4% – to 21.4 billion euros. Household loans, which counts for more than 55% of banks’ loans portfolio, increased mainly due to the active provision of mortgages – an increase of 9% compared to 2019 – one of the highest increase in the eurozone. On the other hand, the loan portfolio of non-financial corporations (40% of the total portfolio of banks) decreased by 15% over the year. Loans to wholesalers, retailers and manufacturing companies declined the most due to the lockdown restrictions. The overall need for business loans also decreased due to a significant amount of government support, postponed investment plans and sufficient internal reserves of companies.

The Lithuanian banking sector has so far proved its resilience to the effects of the coronavirus crisis and has managed to keep non-performing loans at a low level of 2.2% (average for the euro area – 4%). This figure is just 0.5% higher than the result in 2019. In addition, banks supported local businesses and private individuals during the lockdown by restructuring and postponing loans totaling more than €1.3 billion via EBA-eligible moratorium criteria and individual restructuring decisions.

All banks complied with established prudential standards and requirements. The capital adequacy ratio of Lithuanian banking sector exceeded 21%, which makes Lithuanian banks well capitalized (eurozone average – 15%). Moreover, the decisions of the bank’s shareholders to keep almost all the 2020 profit to strengthen the bank’s capital contributed to ensuring a banking sector resilience even further.

Contributor: Valeriya Kuznetsova