Banks to ease requirements

VILNIUS - Lithuania-based banks expect  rapid growth in demand for loans, whereas companies intend to continue financing the largest share of their operating expenses by using internal resources, says the Bank of Lithuania, reports news agency LETA. The existing gap between the demand for borrowing forecast by banks and companies was revealed by the results of the latest surveys of banks and companies conducted by the Economics Department of the Bank of Lithuania.
They also show that in the current half of the year, banks eased lending conditions for the first time since the beginning of 2006.

“During the next half of the year [until October of this year], the majority of banks intend to continue easing lending conditions gradually and expect the demand for loans to grow quite rapidly. According to assessments of banks, the total value of the portfolio of loans granted should grow this year by four to five percent,” said Mindaugas Leika, head of the Financial Stability Division of the Economics Department of the Bank of Lithuania, commenting on the survey results.

According to Leika, the largest impact on lending conditions was made by the decline in interest margins of loans, administrative charges, restrictions on the size of a loan or credit line and on the loan to collateral ratio.
The improvement of macroeconomic expectations and the rise of competition in the crediting market were the main factors that determined the easing of the crediting policy of banks. However, faster easing of lending conditions was restricted by the fact that operational risk of certain business sectors (real estate, construction, hotels and restaurants) did not decline.
The surveys show that the requests of almost a half of all enterprises that wished to borrow this year were satisfied. The main reason for unsatisfied requests were a poor assessment of the financial situation of enterprises, excessive level of indebtedness of enterprises and the persisting risk of economic environment.

According to banks, the growth of the demand for borrowing for the second consecutive sixth-month period was largely determined by improving housing market prospects, increasing consumer confidence and the need of enterprises to finance the acquisition of reserves, current capital and capital investment.

When commenting on the results of the surveys, Leika noted that tight bank lending policy is not an essential factor limiting the operation of companies. The operation of companies last year was mostly restricted by the shortage of demand from customers, whereas in the first half of this year companies were mostly concerned about rising production costs and the shortage of suitable employees.

Bank lending surveys have been conducted twice a year since April 2006. This year, non-financial enterprises were surveyed for the first time.