Featured Product

    IMF Issues Reports Under 2019 Article IV Consultation with Lithuania

    July 31, 2019

    IMF published its staff report and selected issues report in context of the 2019 Article IV consultation with Lithuania. IMF Directors noted that macro-prudential policy is being used proactively to prevent systemic risks. Signs that moderate cyclical systemic risks are emerging led the Bank of Lithuania to raise the countercyclical buffer (CCyB) to 1% in mid-2018. The financial system remains sound, liquid, and profitable. Fintech provides big opportunities to improve financial services and produce high-skill jobs, but it also brings challenges, particularly related to anti-money laundering. The authorities’ efforts to promote fintech are already delivering results.

    The staff report highlights that the financial system remains profitable, well-capitalized, and liquid, with no signs of emerging imbalances. Financial soundness indicators are strong while capital adequacy ratios continue to exceed requirements. The composition of the loan portfolio has increasingly shifted toward mortgages. The favorable economic conditions have contributed to further improving asset quality, with nonperforming loans remaining below the EU average. High profitability is the evidence of bank efficiency being among the highest in EU. Nonetheless, spillovers from real-estate-related vulnerabilities in the Nordic parent banks remain a potential risk. These vulnerabilities improved in 2018, as the housing prices stabilized and the Swedish authorities implemented new mortgage-related macro-prudential policies and increased CCyB. There is a concern that the high concentration in the banking system may be hindering competition. At the end of 2018, seven banks and nine foreign branches were operating, with the three largest banks accounting for 84% of system assets. This level of concentration is relatively high for Europe, albeit not for some small economies similar to Lithuania.

    Macro-prudential policy is being used proactively to address systemic risks. The Bank of Lithuania (BoL) has sole responsibility for, and a broad set of, countercyclical, sectoral, and liquidity macro-prudential instruments to tackle a variety of shocks and has been proactively using them. Most banks have large and rising liquidity buffers, given the high deposit growth. The pace of corporate loan growth has moderated but the growth in mortgages remains relatively high. Banks, households, and non-financial corporates have become less vulnerable and more resilient to shocks through deleveraging. Cross-sectoral exposures have also decreased, reducing contagion risks. The authorities have been proactive in developing a fintech industry. With an innovation-friendly business environment, good and improving ease-of-doing-business and technological infrastructure, Lithuania is placing itself as an attractive host of fintech platforms. In 2018, out of the 170 fintech companies operating in Lithuania, 74 were payment service providers, 45 were in lending and banking business, and 18 in blockchain. The authorities are taking a number of steps to facilitate the development of fintech, including the following:

    • Providing licenses to fintech companies. In addition to e-money and payment services licenses, the authorities introduced the concept of a “specialized bank” in 2017, with similar functions as a brick-and-mortar bank, but with lower initial capital requirements. In addition, through the 2016 law on crowdfunding, they support the creation of advisory and investment services.
    • Supporting the infrastructure for payment services. BoL provides low-service-fees access to the Single Euro Payments Area.
    • Fostering innovation through a regulatory sandbox. This allows market participants to test financial innovations in a real environment for a limited time. Moreover, BoL is creating a blockchain sandbox and promoting open banking.
    • Reducing red tape through simplified procedures for establishing fintech companies.

    Going forward, increased competition is expected in the financial sector, particularly from fintech platforms. Competition is also expected to increase from fintech companies, particularly on payment services, albeit there is also activity on lending and advisory services. The BoL has issued four specialized banking licenses over the last year. Lithuanian banks are increasingly concentrating their business on traditional banking for residents while fintech companies are likely to focus on nonresidents, given the access to the entire EU market and the small size of the Lithuanian market.

     

    Related Links

    Keywords: Europe, Lithuania, Banking, Article IV, Systemic Risk, CCyB, Fintech, Macro-Prudential, Bank of Lithuania, IMF

    Featured Experts
    Related Articles
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    News

    EU Publishes Corrigendum to Revised Capital Requirements Regulation

    EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).

    February 25, 2021 WebPage Regulatory News
    News

    ESAs Issue Statement on Application of Sustainability Disclosures Rule

    ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).

    February 25, 2021 WebPage Regulatory News
    News

    EC Consults on Crisis Management and Deposit Insurance Frameworks

    EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.

    February 25, 2021 WebPage Regulatory News
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Addresses Banks in Scope of First Resolvability Assessment

    BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.

    February 24, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6629