Lithuanian banking: safe from the East

VILNIUS - Nine months after the financial crisis in Russia, Lithuania is re-evaluating its exposure to the Russian market and taking notes for the future.

Looking back at the August events, the central bank has concluded that Lithuanian banks have maintained a healthy detachment from the Russian sphere.

The Bank of Lithuania issued a statement in which it said the banking sector had very little exposure to the Russian market, and suffered no "major direct impact" on the financial health of Lithuanian banks. Only approximately 1.4 percent of Lithuanian banks' assets were in Russia, it said, and the impact of the Russian ruble devaluation was also largely insignificant to the Lithuanian banking sphere.

However, the central bank did acknowledge that banks were experiencing indirect impacts from the Russian crisis. "The decreasing balances in the private companies' bank accounts prove, in a way, the negative impact of the Russian crisis on the financial condition of the companies," the central bank statement said. "When analyzing the tendencies of several years, a seasonal decrease of funds in private companies' accounts during the first months of the year was noticed. However this year, the decrease was more significant."

One of the hardest hit banks in Lithuania was the state-owned Agricultural Bank, which finances the country's struggling agricultural sector. However, the bank claims that the crisis has only caused a relatively insignificant dent in its 1998 profit of 13.5 million litas ($3,375,000).

Mindaugas Vaiciulis, the Agricultural Bank's director of financial markets, reported that less than half of its investments in Russian markets were not returned. He added that a $2 million syndicated loan made to the SBER Bank, Russia's largest bank, was repaid in full.

"We gained more than half of our investments back. Approximately 8 million litas came back, and 7 million litas are in question," he said. The bank's assets, Vaiciulis estimated, are roughly 1.5 billion litas.

Vaiciulis noted some indirect consequences of the crisis. Some clients lost money in Russia and consequently could not repay their loans, but more commonly, the bank experienced slower turnover, lower commissions and less earnings from foreign exchange.

"The indirect impact on our clients was not so large for the bank. We expected it to be more. I think it is recovering now. Also, trading with Russia is recovering. Turnover went down but during March and April we saw a little growth from the bottom in January and February," Vaiciulis said.

Vaiciulis stressed that the bank expected to have been harmed much more by the economic distress in the East. "We are quite happy that we were conservative about our investments in Russia. Many banks suffered huge losses, especially in Latvia and Estonia," he said.

One way the Agricultural Bank is avoiding further problems with the still-reeling agricultural sector is by granting loans to the Agency of Regulation of Agricultural Products Market. This agency then helps individual agricultural firms. "Loans to that agency are guaranteed by the government," Vaiciulis reported.

For Snoras Bank, the Russian crisis has meant a return from the brink of adversity. At the time the crisis hit, it had been developing relatively extensive connections with Russia and the CIS.

But Naglis Stancikas, head of the bank's planning department, reports that Snoras has since sold all of its investments in Russian T-bonds. Also, the bank reported a 1.9 million litas profit for the first four months of 1999, compared to a loss of 3 million litas for the same period last year.

The bank had also initiated other major changes. First, Snoras sold new stock, increasing the bank's capital to 140 million litas. The bank also has new majority-interest stockholders, the Incorion Investment Holding Company. Last October, the shareholders elected a new bank council and have reduced the bank's operating expenses. Also, they have resolved to increase the authorized capital of the bank to 84 million litas, Stancikas reports.

Furthermore, Snoras has not cut all of its bridges to the East. The Baltic News Service reported that Snoras still maintains an office in Minsk and recently opened one in Kiev.

The Russian crisis has not forced banks to their knees, but it is forcing different policies on the market. While Lithuanian banks are expanding their services to include more types of loans, they are also following more conservative lending practices.

The central bank has asked banks to re-evaluate clients to determine their level of exposure to the Russian market, and additional specific provisions for loans have been created.

Even Vilniaus Bankas, a bank that was relatively unaffected by the Russian crisis, has acknowledged taking additional "necessary precautions" needed to doublecheck the level of involvement its clients have in Russia and the CIS.

Alexander Federas, head of public relations for Vilniaus Bankas said, "A certain assessment of the situation has been done, but otherwise there was not a big impact on our customers. It was not as big as it could have been."