VILNIUS - The chairman of the board of the Bank of Lithuania, Vitas Vasiliauskas, says that he sees evident signs of recovery in Lithuania, and that the banking system is gaining momentum, reports news agency LETA. “Currently, however, we are in a stage when the most challenging task is to safeguard favorable tendencies and to provide sustainability of growth,” said Vasiliauskas when presenting the Review of Banking Activities for the second quarter.
During the first half of the year, banks operating in Lithuania earned 513.6 million litas (148.7 million euros) in profit, while last year, over the same period, the banks incurred a 408.1 million litas loss.
The profit of the first half of this year is only slightly smaller compared to that what the banks usually earned during the economic upturn from 2007 to 2008.
Seven banks and five foreign bank branches earned a profit; two banks and five foreign bank branches suffered losses.
Improving profit indicators were influenced by decreasing provisions for bad loans, since, along with the recovering economy, more and more loans which previously were considered non-performing were starting to be repaid. Moreover, banks received much more net interest income: during the first half of the year they earned over 712 million litas, which is 204 million litas (40 percent) more compared to the same period last year.
“The profit growth from interest rates was mostly determined by decreasing bank expenditure for interest rates that they pay for deposits and other financial resources. However, there is not much room for the price of financing resources of the banks to go down, therefore, in order to maintain stable interest income or to increase them, the banks should increase their lending,” Vasiliauskas pointed out.
According to him, the banks will have to continue prudent lending which will also be promoted by the Provisions of Sensible Lending of Banks that the Bank of Lithuania is currently close to completion. It is of importance to adequately evaluate the already granted loans and to timely set aside provisions for bad loans. In the first quarter, all banks operating in the country complied with the prudential requirements set by the Bank of Lithuania; however, in order to avoid potential threats, it is important to strengthen the capital base.
In the first quarter, deposits of customers at the banks decreased; in the second quarter they increased marginally by 83.5 million litas (0.2 percent), and amounted to 44.8 billion litas.
Individual deposits increased to a record level, i.e. they amounted to 26.1 billion litas.