Interest rates on housing loans have grown sharply in Lithuania since 2015 and are now 1.5 times above the average in the eurozone, the country's central bank says. High concentration in the banking sector requires measures, according to the Bank of Lithuania.
The number of big players in the mortgage market has shrunk after several mergers over the last few years, says Tomas Garbaravičius, a board member at the Bank of Lithuania. Less competition has meant that, over the last four years, interest rates on housing loans have grown almost 1.5 times and currently stand at 2.3 percent, well above the eurozone average of 1.8 percent.
“The concentration of banks has increased, there have been several mergers and redistributions. We are noticing that two clear leaders have emerged in the housing market and their market share continues to grow. Other banks simply cannot keep up with the market leaders,” Garbaravičius said in the central bank's press conference on Tuesday. “The higher concentration is felt through interest rates. They are higher than in the other eurozone countries.”
In 2017, DNB and Nordea banks merged into Luminor. Meanwhile Danske Bank has left the Lithuanian market. Besides Luminor, SEB and Swedbank are the biggest mortgage loan providers in the country.
“Of the five market players, there now remain three,” according to Garbaravičius. “One of them [Luminor] continues its internal processes [of completing the merger], so there are actually just two market players.”
Due to a high demand for housing loans, the banks “have the power and exploit the situation,” according to him.
The Bank of Lithuania says it is launching public consultations to discuss the possible solutions to lower mortgage interest rates.
The central bank has proposed several possible measures which include allowing insurance companies and pension funds to issue housing loans, creating digital tools for users to find best loan offers, and inviting foreign banks to issue mortgages across the border.
“[Doing the latter] is difficult, because there are many consumer protection rules [...] and there are legal nuances,” Garbaravičius says. “But Lithuania is a small and flexible country, so we could try and do it.”
President Gitanas Nausėda has also suggested setting up a state-owned bank to introduce more competition into the market.