Banks, Deposits, Financial Services, Lithuania, Loan, Markets and Companies, Real Estate

The environment of low interest rates and the falling income from fees and commissions led to a decline in banks' profits.

"The recovery in the credit market is associated with rising demand. Enterprises are borrowing more for investment; in the environment of low interest rates, credit lines for covering working capital were used more often as well. The expectations-driven property market activity boosted the demand for housing loans among the population," said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.

According to him, the development of the credit market is currently sustainable; however, the situation is constantly closely monitored and the Bank of Lithuania will take additional actions to ensure financial stability, where appropriate.

As of 1 July 2015, banks had granted to their customers EUR 375 million (2.5%) more loans quarter-on-quarter, while their entire loan portfolio amounted to EUR 15.2 billion. Year-on-year the amount of loans grew by EUR 424 million (2.9%). Residential mortgage loans have grown fastest in the second quarter of 2015 since the end of the fourth quarter of 2008: the portfolio of loans within this segment expanded by EUR 86 million (1.5%) to reach the highest levels since early 2010 – EUR 5.8 billion.

According to Bank of Lithuania calculations, about 37.3% of the house purchase transactions of natural persons in the second quarter of 2015 were at least partly financed from borrowed funds. During the housing market boom – in 2007 – about 70% of transactions were financed from loans at least in part.

As of 30 June 2015, bank assets amounted to EUR 22.4 billion, a decline of EUR 211 million (-0.9%) over the second quarter. Year-on-year the assets of the banking system decreased by EUR 331 million (-1.5%).

The profits earned by banks and foreign bank branches operating in Lithuania over the first half of 2015 amounted to EUR 109.2 million, a year-on-year decrease of EUR 22.5 (17.0%).

"The profits were reduced by several factors. The euro interbank offered rate, EURIBOR, fell further, which reduced the interest payable by bank customers. Moreover, domestic commercial banks followed the Bank of Lithuania's approach that, with the EURIBOR rate being negative, the overall interest payable by a customer must be cut, unless otherwise specified in loan agreements. Another important aspect is the euro. Upon its adoption, banks had to substantially – to the domestic transfers' level – cheapen their euro transfer pricing to customers. In addition, upon the adoption of the euro, banks lost their income from litas exchange into euro and vice versa," said Chairman of the Board of the Bank of Lithuania Vitas Vasiliauskas.

In the first half of this year, the income from fees and commissions fell by EUR 17.2 million (-17.1%) year-on-year, to EUR 83.3 million; net interest income fell by EUR 2.9 million (-1.6%) and totalled EUR 176.2 million.

As of 1 July 2015, customers held with banks EUR 16.0 billion in deposits, which is a quarter-on-quarter increase of EUR 40 million (0.3%). Deposits rose over the quarter across customer groups other than private undertakings. Deposits of natural persons increased the most – by EUR 201 million (2.1%), while the amount of enterprise deposits contracted by EUR 222 million (4.6%). Compared to the second quarter of 2014, the customer deposits' amount with banks increased by EUR 1.8 billion (12.8%).

In the second quarter of 2015, 7 banks and 8 foreign bank branches operated in Lithuania. All banks complied both with the minimum capital adequacy requirement and the new capital conservation buffer requirement. Despite the good state of the banking system's capital, for some banks the capital adequacy issue is relevant. The Bank of Lithuania continuously monitors the capacity to absorb bank losses, urges banks to further manage risk conservatively, permanently hold a sufficient capital surcharge, even larger than the established required ratios.