Analytics, Banks, Direct Speech, Financial Services, Lithuania
International Internet Magazine. Baltic States news & analytics
Friday, 29.03.2024, 09:37
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.