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Lithuania’s banking sector: Facts & Figures

The Lithuanian economy has gathered momentum: real GDP grew by 1.4% quarterly. Over several recent years, private investments of businesses were hampered by geopolitical tensions and caution on the business side, however, a pick-up in investment activities of enterprises at the beginning of 2017 was the main factor indicating stable growth in banks’ credit portfolios. Pro-activeness in implementing investment projects was characteristic of energy, transport and industrial companies.

Overall, the economy is expected to grow faster in 2017-2018. The International Monetary Fund predicts 3.2% growth of GDP.

The number of participants in the Lithuanian banking sector remained unchanged. In total, six banks and eight foreign bank branches are operating in Lithuania. The Lithuanian banking sector is dominated by the subsidiaries of large Scandinavian banks. Three largest banks – SEB, Swedbank and DNB – are fully owned by their parent legal structures in Sweden and Norway. The other three banks, AB Šiaulių bankas, UAB Medicinos bankas and AB Citadele bankas, are considerably smaller and are owned by a group of investors of local and foreign capital. Scandinavian capital also dominates in the banks of foreign branches. In Lithuania, 74 credit unions operate, united by the Lithuanian Central Credit Union. Currently, the Lithuanian government has no stake in the banking sector.

Banks in Lithuania are seeking to achieve better operational efficiency through further consolidation. DNB and Nordea banks are seeking to merge businesses in Estonia, Latvia and Lithuania to build a single entity. The deal needs regulatory approval by the national authorities and the European Commission and is expected to be completed by the end of 2017.

Digital banking is gathering pace. The number of cashless payments rose by 19% year-on-year. Notwithstanding branch closures, the number of bank employees increased by 2.4% in 2016.

Credit growth in Lithuania is picking up. Funding conditions remain very supportive, as final interest rates on loans for both non-financial enterprises and households remain among the lowest in the euro area. A favourable economic situation contributed to a growing credit portfolio. The loan portfolio grew by 8.8% year-on-year in December 2016. After a long period of deleveraging, which was characterised by a contraction of the loan portfolio, positive credit growth suggests optimism, as funding starts reaching small and medium-sized companies that were previously cut off, due to higher risks. The household loan portfolio consists predominantly of housing credits. Rising housing affordability also supports private sector lending.

The Lithuanian banking system has room for credit expansion, as the ratio of private sector debt to GDP remains low at about 43%. Moreover, loan quality keeps improving, with non-performing debt dropping to 4.2% of the overall loan portfolio (in 2016 Q3). Despite low interest rates, deposits remain a quite popular product of banks and are continuously growing.

Lithuania is one of the first in Europe to have learnt from the lessons of the crisis. Since 2011 it has already been applying financial stability enhancing measures, i.e. the Responsible Lending Regulations.

On 1 February 2017 regulation entered into force obliging banks and credit unions to provide a bundle of basic account services at affordable prices i.e. no more than €1.5 per month (and no more than €0.75 for low-income residents). The basket includes a wide range of daily payment services, the price cap will be valid until the end of 2017 and reviewed annually.

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