Rumors force run on Vilnius Bank

Vilniaus Bankas, Lithuania's largest bank, is recovering this week from a moderate run on its accounts caused by rumors that brought the bank's financial stability into question.

While official figures are not available for the number of customer accounts closed or assets withdrawn during the run, which began in December and ended only last week, experts speculate that the bank's holdings shrank by 13 million litas (3.77 million euros) - 20 million litas in the fourth quarter of 2002, although some surmise the figure could be much larger.

The bank's current total holdings equal 3.5 billion litas.

In spite of the absence of concrete figures, the lines of customers anxious to withdraw money in Vilnaus Bankas' branches across Lithuania demonstrated the potential psychological and financial severity of the incident.

To some, the disquiet surrounding Vilniaus Bankas was reminiscent of the beginning of the 1995 bank crisis that left the Lithuanian banking system languishing for several years.

There is no clear consensus as to the initial cause of the run on Vilniaus Bankas.

"I would be happy if I knew what had caused the rumors, but quite simply, I do not," Julius Niedvaras, president of Vilniaus Bankas, told The Baltic Times.

Regardless of the source, it is clear that the rumors had a far-reaching effect.

Audrone Ranonyte, finance editor of the Lithuanian business daily Verslo Zinios, pointed out that the bank was slow to contradict the fears customers had during the run.

"Vilniaus Bankas chose to remain silent about the rumors for a long period of time," Ranonyte said.

Raimundas Palaitis, vicechairman of the Budget and Finance Committee of the Seimas (Lithuania's parliament), agreed that Vilniaus Bankas was also partially at fault.

"The bank waited a long time to make any public statements," Palaitis said. "This was a tactical error."

It is furthermore possible that the run coincided with a seasonal fluctuation in customers' need for cash. "People were probably going to bank machines to take out a few litas for Christmas shopping," remarked Palaitis.

That the run on Vilniaus Bankas is all the more remarkable given the degree to which banking in Lithuania has changed since 1995. Unlike the situation then, Vilniaus Bankas is currently in strong financial health-its unaudited net profit for the first three quarters of 2002 was 96.9 million litas, up from 66.9 million litas for the same period in 2001.

"Vilniaus Bankas is in solid financial health," said Niedvaras. "We are at 40 percent liquidity, and we continue our normal activities," he stated.

Moody's and Fitch ratings for Vilniaus Bankas and its international partners in the SEB consortium have recently been upgraded, the most recent being an upgrade in Vilniaus Bankas' debt rating in mid-December.

In addition, the information pertaining to all Lithuanian banks, including Vilniaus Bankas, is now much more freely available than it was in 1995. Vilniaus Bankas posts all of its significant statistics on its Internet page, which recently won the award for top Web site among 90 commercial and institutional participants in the 2002 Lithuanian WWW Site Competition.

As for measures Vilniaus Bankas is taking to safeguard itself against the possible effects of the previous weeks' events, Niedvaras is confident that current procedures are working.

"Perhaps we'll have a conference or a meeting, but for the most part we will continue to do what we have been doing," he said.

Overall, insiders expressed confidence in Lithuania's banks.

"In my opinion, the Lithuanian banking system is clean. We have a good system," said Palaitis. "But the only way people will fully believe this is if we go a long time without another crisis."