The country's four largest banks will not be allowed to merge if their aggregate share will exceed 80 percent and will increase more than 7.5 percentage points after a merger.
Banks cannot overstep the limits in any of the three market segments: assets, loans to residents, except loans to credit and finance institutions, and deposits, except deposits by credit and finance institutions.
The limits were set May 13 by the Bank of Lithuania's board which approved principles of assessing the systemic risk in the banking sector. The principles will be applied in cases when permission from the central bank is necessary.
"Now none of Lithuania's four largest banks - Vilniaus, Hermis, Taupomasis or Zemes Ukio - could merge," said Tomas Garbaravicius, deputy head of the central bank's bank policy unit.
But any of the banks could take over a smaller bank with a market share lower than 7.5 percent, he said.
"Vilniaus Bankas and Hermis [Lithuania's two biggest privately owned banks] currently exceed the limits in terms of assets, loans and deposits, but if foreign banks' Lithuanian subsidiaries work very actively, the share of the four largest banks will shrink and things will change," he said.
Vilniaus Bankas, which already holds almost 9 percent of Hermis' capital, withdrew its application for permission to acquire up to 50 percent of shares in Hermis in March, but it has not dropped plans to take over its key rival.