International Internet Magazine. Baltic States news & analytics
Sunday, 26.03.2017, 10:21
Lithuanian banks lent much more in 2016 and growing profits at the same time
2015 was a low start year, while in 2016 lending already gained momentum. Banks granted more loans to both enterprises and residents, while the value of housing loans exceeded pre-crisis levels. Our forecast is that this year customer demand for loans will not decline; hence, lending will continue to grow.
The Bank of Lithuania will further monitor the market very closely and, having identified the threat of a growing credit bubble, will immediately respond by applying macro-prudential tools.
The net value of the portfolio of loans granted to bank customers grew by EUR 10.6% over 2016, to EUR 18.1 bln. The value of loans granted to residents increased by 6.9 %, to almost EUR 8.1 bln.
The largest share of loans granted to households was comprised of housing loans, the value of which grew by 6.4 % over the year, to EUR 6.4 bln – reaching historical heights. Growth in housing credit was affected by real estate market activity, related resident expectations and strong income growth, as well as the improving economic situation and low interest rates environment. Nevertheless, the housing credit market was uneven at a national level. In 2016, more than half (55%) of the amount of new housing loans was designated for purchasing flats and houses in Vilnius County. The counties of Kaunas and Klaipėda accounted for 19 % and 14 % of the flow of new loans for house purchase respectively.
Loans to enterprises increased by 11.3 % in value over the year, to almost EUR 8.6 bln. This double-digit growth was driven by a few large loans.
The bank loan portfolio quality was higher. The share of non-performing debt instruments contracted by 1.7 p.p. over the year, to 3.8 % as of 1 January 2017. The quality indicators improved for both loans granted to non-financial corporations and households.
Strong credit growth grew bank assets, which went up by 10 % over the year, to EUR 25.8 bln.
Increased lending volumes, a decline in interest expenses increased banks’ net interest income, while these contributed the most to profit growth. According to unaudited data, in 2016, banks and foreign bank branches earned EUR 252.2 mln in profits, a year-on-year increase of EUR 36.9 mln (17.1%). Ten banks and foreign bank branches operated at a profit, three market participants incurred losses.
The banking sector capital continued to be in a stable condition in 2016. As of 31 December 2016, the capital adequacy ratio of the banking system was 19.4%.
Based on reports from commercial banks submitted to the Bank of Lithuania, banks complied with the capital requirements. However, in our view, strengthening of capital continues to be most relevant for domestic banks; hence, this should be a priority task in their activities.
Despite intensified crediting, banks have retained a balanced funding structure relying on the deposits of residents and enterprises. Banks hit deposit records. The year 2016 was no exception. The amount of customer deposits with banks stood at EUR 18.8 bln as of 1 January 2017, an increase of 10.0% year on year. The largest share of this amount – almost EUR 11.2 bln – was comprised of resident deposits. With a particularly low interest rates environment prevailing, about 70 % of this amount is simply held in current accounts, without concluding contracts.