LONDON - The banking systems in the three Baltic states are in good shape, given the sound health of the large banks, while the smaller banks are improving with the aid of stronger operating environments, Fitch Ratings said in a survey published last week.
All three banking systems are going through a period of strong lending growth, particularly in leasing and consumer banking, including consumer credit and debit cards. Although this may raise concerns, tighter risk management systems at the larger banks and increased regulatory supervisory powers should help improve asset quality, said the report.
Despite the fast growing banking systems, penetration in all three countries is still weak. Even by regional standards, total banking assets accounted for only 40 percent of GDP in Lithuania, suggesting there was scope for expansion (in developed countries the ratio of banking assets to GDP is approximately 1:1), and the ratings of some of the medium-sized banks may follow the upward trend that is expected in the sovereign rating.
Fitch notes that all three economies are affected by external events because of their heavy reliance on external trade, and that all banks in the three countries are involved in varying degrees in financing the transit trade that takes place between Russia/CIS and the rest of Europe.
Estonia, said the report, is the least affected by this trade and Latvia the most.
The report explained that partly because of this reliance on trade, a high proportion of the balance sheets of the banks are denominated in foreign currencies.
Fitch also noted that Latvian banks, more than the banks in the other two Baltic states, have a relatively high proportion of nonresident deposits financing Latvian assets, which has had a bearing on the banks' ratings.
The large foreign shareholding in the banks has had an overall positive impact on all three banking systems, although the largest Latvian bank, Parex Bank, remains in private, residential hands.