Milda Aleknonytė | The Lithuania Tribune
Apparently, the source of a crisis can not only be lack of money, but the excess of it as well. Banks operating in Lithuania announced that they are being visited by a new kind of crisis – the banks have too much money that they don’t know what to do with.
In July, the bank deposits portfolio hit a record high of 44.3 billion litas, an increase of 2.1%. The main reason for this growth is a dramatic increase in household deposits. Bankers say that this is the largest amount the banks have collected during their entire banking history. Stasys Kropas, president of the Lithuanian Banker’s Association, told ELTA that “In the business sense, this is a threatening message: bank liabilities to customers are increasing, while the opportunities to employ the money in the current economy are not increasing. And this has been running for a good three years – banks have a lot of “short-term” money, which is expensive to hold, because there is no high demand for short-term money in the market, and expected regulatory acts are forcing to minimize the risk of maturity mismatch risk.”
Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania, observed already in May 2012 that “There is super liquidity.” Banks are overflowing with money. Basically, the European Central Bank threw in large quantities of money all around the world through their open market operations and therefore, credit resources are much cheaper, which, naturally, decreases the price of deposits. Now there is no use for banks to borrow in local markets for a higher price when they can borrow more cheaply abroad.
Mr. Vasiliauskas points out, that, while commercial banks are overflowing with money, they are reducing the prices of deposits, and could, but do not want, to lend to the State. As he explained: “Banks, which would like to invest in government securities, are talking about short-term securities. The essence of Government borrowing is borrowing for a longer period of time – five years or more. Banks are willing to lend 1-3, maximum 5 years. This is how they manage their risks.”
The fears of the Banker’s Association may be coming to late, as in the second quarter of 2012, the loan portfolio increased for the first time in three years by 0.52 billion litas. This was more than enough to redeem the decline in the first quarter of 2012. Now in the first half of 2012 the loan portfolio increased by 201 million litas (0.4%) to 54.21 billion litas. The main reason for this increase was loans to private enterprises.
According to Mr. Vasiliauskas, the forecast for the third quarter is positive: “There is an increase of bank liabilities to lend in the future, which leads to the assumption that business loan growth can be expected in the third quarter, of course, if changes due to the European debt crisis do not lower the expectations of investment opportunities.”
With such a positive forecast for the banking sector and with profits of 298 million litas in the first half of 2012, many sectors probably envy the banking sector and wish they had their problems.