VILNIUS - In its latest review of the banking sector, Standard & Poor's, a rating agency, said that improvements in the business environment, activities of regulatory authorities and bank performance figures have led to greater stability and overall reliability of Lithuania's banks.
What's more, the system has become more stable and trustworthy on the back of general economic growth, changes resulting on the country's accession to the European Union, a rise in foreign capital and the implementation of structural reforms, including privatization, the international agency wrote.
Still, analysts said that risks remained. "Currently the major banking risks are posed by the fast growth of credit portfolio and impact of potential external shocks on Lithuania's small economy, although the country's resistance against such shocks has improved considerably," said Alwin Greder, a credit analyst at Standard & Poor's.
Despite the fast credit portfolio growth of Lithuania's banks, its ratio with the country's gross domestic product is 21 percent, the smallest among all EU newcomers. In developed countries the ratio averages about 100 percent of GDP.
Thus, a rise in the overall loan portfolio, backed by low interest rates and continuing economic development, should remain strong enough in the short-term.
Standard & Poor's noted a significant rise in competition among local financial institutions that have already been fully privatized. Competition turned even harsher as local commercial banking capital was 89 percent owned by foreign investors. Nordic institutions emerged to be the leading investors in Lithuania's banks, the agency wrote.