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Lithuania’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

The Lithuanian economy has been growing steadily since 2015. Recent data shows that Lithuania’s Gross Domestic Product growth during 2019 beat all previous forecasts: GDP increased by 3.9% (Lithuanian Ministry of Finance predicted 2.6% growth). Such an increase was facilitated by the rise in export volume, which was the highest in the Baltic States, and 9.6% in 2019. In addition, during 2019, net inflows of foreign direct investment amounted to 2.5% of GDP, compared with 1.6% in 2018, which also contributed to economic growth.

The favourable economic environment of 2019 had a positive effect on the banking sector, both the volume of banking activities and the number of new participants grew. The Lithuanian banking sector consisted of 18 banks of which ten were holding either a bank or a specialized bank licence, while eight banks were carrying out their activities as foreign bank branches. In addition to three new specialized banks licensed in 2018, two more specialized bank licences, and one bank licence were issued during 2019. Specialized banks are associated with the development of FinTech (financial technologies) in Lithuania. The figures make Lithuania the second largest fintech hub in Europe by the number of licensed companies, only behind the UK, and the largest within the EU. The Bank of Lithuania offers help and guidance to potential financial market participants via its Newcomer Program, which attracts new companies and encourages them to develop new products in the country.

The Lithuanian banking sector is dominated by the subsidiaries of large Scandinavian banks. The two largest banks – SEB, Swedbank – are owned by their parent banks in Sweden. The other three banks, AB Šiaulių bankas, UAB Medicinos bankas, and AB Mano bankas, are considerably smaller and are owned by groups of local and foreign investors. In the foreign banks’ branches, Scandinavian capital also dominates. There are 45 credit unions united by the Lithuanian Central Credit Union. The Lithuanian government has no ownership stake in the banking sector.

Bank efficiency in Lithuania remains one of the highest in the European Union. The comparative data of the European Banking Authority (EBA) for the third quarter of 2019 show that the Lithuanian banks included in the EBA sample were the most efficient in the entire banking system of the EU countries. This means that banks in Lithuania are among the most profitable in the European Union.

Banks increase their efficiency by minimizing their operating costs – market players continue to close branches and reorganize them into customer consulting centres, as the customer’s movement to digital banking gathers pace. For example, the number of customers using Smart-ID, a digital personal identification tool, exceeded 1 million which is 35% of the Lithuanian population.

For the first time in history the Lithuanian banks‘ assets surpassed the €30 billion mark, a 7.2% increase during 2019. The reason for such rapid breakthrough in the banking sector was the record growth rate of customer deposits, which grew by as much as 15% over the year (17% corporate clients and 15% private individuals). This was facilitated by the rise in income and employment in Lithuania during 2019.

The acceleration in loan growth slowed during 2019. The bank loan portfolio rose by 3% due to a slowdown in corporate lending, which amounts to 43% of the total loan portfolio. Nevertheless, the households were still actively borrowing to obtain housing, a 7% growth compared to 2018. Therefore, the housing market remains active and funding conditions are favourable and supportive, as final interest rates on loans remain one of the lowest in the euro area.

The prudent credit policy and good results of the Lithuanian economy have allowed banks to maintain the non-performing loan ratio at the very low level of 1.6%, which is the lowest indicator per decade in Lithuania.

Moreover, the Lithuanian banks are stable, resilient, and well-capitalized as all of them comply with the prudential standards that are set. The capital adequacy ratios exceed the established standards and, according to the CET1 index, Lithuania was among the top 5 EU countries in 2019 with a very high indicator. The level of bank liquidity remained high and the volume of liquid assets held by banks increased from 254% to 272% during 2019 and more than doubled the set of minimum requirements of 100%.

All the mentioned facts about Lithuanian banks enable them to function stably and fulfil their natural function, that of financing the economy and stimulating economic growth.

Contributor: Valeriya Kuznetsova valeriya.kuznetsova@lba.lt