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2013.05.09 13:55

Lithuanian banks improve lending conditions to businesses

DELFI|The Lithuania Tribune2013.05.09 13:55

A survey performed by the Bank of Lithuania shows that commercial banks, for the second half-year in a row have mitigated credit conditions for small and medium businesses, and in the future plan to mitigate them even more. 

A survey performed by the Bank of Lithuania shows that commercial banks, for the second half-year in a row have mitigated credit conditions for small and medium businesses, and in the future plan to mitigate them even more.

As the major argument banks indicate growing competition and improving risk assessment.

“The softening of lending conditions for enterprises was mostly impacted by increasing competitive pressure in the banking market and expectations for the future of Lithuania’s economy, improved risk assessment of business prospects or the quality of pledged assets,” says Virgilijus Rutkauskas, Chief Economist of the Macroprudential Analysis Division of the Financial Stability Department of the Bank of Lithuania.

According to V. Rutkauskas, the businesses felt most the softening lending conditions with the drop in margins, more liberal pledged assets requirements or the decrease of other liabilities indicated in the agreement.

In the upcoming half-year banks intend to mitigate even more the conditions applied to non-financial companies. This should be felt most by small and medium businesses as well as those borrowing for a longer period.

In 2013 banks hope for a 1 to 5 per cent growth in the loan portfolio, i.e. practically the same as was hoped for in an analogous survey conducted half a year ago. Such expectations are associated by respondents with a foreseen growth in business and household credit demand.

However, according to the surveyed banks, in the last half-year riskier house purchase loan margins hiked, loan maturities were shortened.  The liberation of household consumption and other loan conditions, due to the solvency of credit beneficiaries, offset increasing collateral requirements.

Respondents indicate that in the coming half-year the conditions of consumer finance loans will be slightly tightened, while residential loans will remain unchanged.

Survey participants think that, on the one hand, the financial status of real estate, construction, and households should improve.

On the other hand, real estate, construction, accommodation and catering services, as well as transport, continue to be the economic activities for which banks were more likely to limit loan provision for companies.

The results of the survey showed a decrease in the number of bank customers delaying payments, especially among residential loan recipients. Therefore, banks hope for a moderate improvement in the quality of the loan portfolio, and this allows them to decrease the costs of provisions for bad loans.

Commercial bank and foreign bank branch lending surveys are organised twice a year in order to obtain information on financial institution non-interest bearing loan terms and conditions, lending costs and market expectations.

Six commercial banks and three foreign bank branches provided answers for the bank surveys, conducted in March–April 2013.

The detailed Review of the Bank Lending Survey can be found on the Bank of Lithuania website. 

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