OREANDA-NEWS. On January 29, 2009 During the press conference in Vilnius, Mr. Reinoldijus Sarkinas, Chairman of the Board of the Bank of Lithuania, presented the domestic banking performance results for 2008, reported the press-centre of Bank of Lithuania.

According to the assessment of Reinoldijus Sarkinas, the growth of bank assets by 10.9 per cent and the increase in the volume of loans granted to customers of 18.9 per cent last year, compared to 2007, are perfectly acceptable growth rates under the current economic conditions.

At the same time, the Governor of the Bank of Lithuania noted that such results of the year were determined by the first three quarters of the previous year. The fourth quarter of 2008 was quite stressful for the banking system. Although insignificant, but still a rise in deposits and bank assets in previous quarters was replaced by a decline.

In 2008, the growth rates of bank assets and loans were the lowest in the last several years, whereas deposits held with domestic banks went down by 4.7 per cent. As Reinoldijus Sarkinas observed, “this reflects the real situation”. Household deposits increased by 6.4 per cent last year, whereas they declined by 1.4 per cent in the fourth quarter.

The head of the Bank of Lithuania openly said that at the end of the last year the loan portfolio of the banking system declined and its quality indicators deteriorated. “It is also a reflection of our economic reality”, noted Reinoldijus Sarkinas. He observed that last year  the portfolio of housing loans grew by 24.8 per cent compared to 2007. In the fourth quarter, their growth made up 3 per cent.

According to the unaudited annual financial statements of banks, 7 domestic banks and 2 foreign bank branches were profitable in 2008, whereas 2 banks and 5 foreign bank branches suffered losses. The total profit earned by domestic banks in 2008 was LTL 902.6 million, i.e. 21.9 percent lower than in 2007.

Last year, the profit earned by the banking system declined for the first time in six years, during which the profit earned by the banking system was growing constantly. The largest share of the bank profit was earned during the first three quarters of the last year. Meanwhile, the growth of the profit of the banking system almost came to a halt in the fourth quarter of the last year: banks only earned LTL 18.2 million in this quarter.

Responding to a question about the prospects of banking this year, Reinoldijus Sarkinas said: “Everything will depend on the situation in the economy of Lithuania. If the hard times last, it will not be easy for banks as well”. He hoped that even under these conditions a part of banks will earn profit; at the same time he forecasted that not all of them will be successful at that.

Reinoldijus Sarkinas emphasised that last year all domestic commercial banks complied with prudential requirements set by the Bank of Lithuania. According to the data of 1 January 2009, the banking system liquidity ratio made up 39.1 per cent and exceeded the minimum set by the Bank of Lithuania by more than 9 percentage points. Although the capital base of the banking system decreased in the fourth quarter of 2008, the capital adequacy ratio of the banking system increased by almost 0.1 percentage point from 12.85 per cent to 12.94 per cent. (the minimum required ratio is 8 %).

The Governor of the Bank of Lithuania indicated that the funds of parent banks or other banks belonging to the same group of the parent bank increased by LTL 10.8 billion and reached LTL 38.4 billion on 1 January 2009, which made up 46.3 per cent of total liabilities. These numbers disprove the opinion sometimes expressed that the banks “export money” from Lithuania.

When asked about the potential euro adoption date, the Chairman of the Board of the Bank of Lithuania acknowledged that he does not want to guess, but made an assumption that already at the end of this year or in 2010 Lithuania may comply with the inflation criterion, which prevented our country from adopting the euro in 2007. However, he expressed his concern that risks may emerge with regard to compliance with two other criteria - general government deficit and long-term interest rate. Still, Reinoldijus Sarkinas expressed cautious optimism that the period of 2011 to 2012 may be a realistic date of the euro adoption in Lithuania.

The Chairman of the Board of the Bank of Lithuania positively evaluated the efforts of the Government to stabilise the public finance situation and the plans to establish a special bank activity stabilisation fund, from which credit institutions operating in Lithuania could borrow, if they lacked funds. The Bank of Lithuania participated in the preparation of the draft Law on the Banking System Financial Stability Enhancement Measures, which provides for the establishment of such fund. However, the said legal act has not been adopted yet. Many countries have adopted similar sets of laws, which provide for specific government aid measures for bank liquidity support.

Reinoldijus Sarkinas did not discount the possibility for Lithuania to borrow from the International Monetary Fund in the future, emphasising that, if it was done, in case of necessity, “it would not be anything bad”. At the same time, the Chairman of the Board of the Bank of Lithuania indicated that currently there is no necessity of such borrowing.

The Chairman of the Board of the Bank of Lithuania also answered other questions of the media.