How is life in the financial province?

October 7, 2008 at 9:32 pm Leave a comment

How does it feel to live in the financial province?  One could ask a Lithuanian, Latvian or Estonian.  It depends when you live here.  So far so good, the financial experts agree.  There is not much we can do, Lithuanian financial system almost fully belongs to the Scandinavian banks.  Hence we just have to watch and wait.  We are told, the Scandinavian banks are amongst the most stable and prudent in the world, they are doing well!

The Bank of Lithuania announced that if required it could extend some 1 billion litas (EUR 289 mln) in loans to domestic commercial banks without breaching the norms of litas coverage with foreign currency and gold reserves.

The central bank governor Reinoldijus Sarkinas toled this Tuesday that “Our banks do not need those loans today, that is for sure. There were 3.4 billion litas on banks’ accounts in the morning, they perform all operations”.

He added that Lithuania’s commercial banks had some 40 billion litas in deposits and the aggregate loan portfolio of some 70 billion litas.

Sarkinas would favour the European Union (EU) decision to raise the amount of insurable deposit.

“We would support the proposal of the European Commission – to boost the amount of insurable deposit to 100,000 euros. I think we could agree to that,” he said.

In line with Lithuania’s legislation, a deposit amount of up to 3,000 euros is compensated 100 percent and the amount of up to 22,000 euros – by 90 percent in the event of bankruptcy of a credit institution. Thus the maximum insurance amount is 20,100 euros.

However, there are few things on the horizon.  As the BNS announced Lithuanians have become increasingly worried about the country’s economic prospects in the past year, a public opinion poll has shown.

The BNS writes that the people continue to see rising prices, the brain drain and the use of Lithuanians as cheap labor by foreign countries as the main disadvantages of the EU membership, according to the poll conducted by Vilmorus for the European Commission’s Representation in Lithuania.

The percentage of respondents expecting Lithuania’s economic situation to improve fell to 35 percent from 40 percent a year ago and the percentage of those anticipating a further decline in unemployment was down to 39 percent from 51 percent.

On the other hand Lithuania’s Finance Minister Rimantas Sadzius expects the national economy to get on the upswing in 2011-2012.

“That slowdown, whether it goes reverse in 2011-2012, it only depends on us. On business in the first place,” Sadzius said at the meeting with industrialists in Vilnius on Tuesday.

Businessmen should face up to credits getting more expensive during at least several years, he added.

Sadzius said, “Economic development is slowing down, we all have problems. We should also include two more things into our expenditure estimates, i.e. growing prices of energy and labour”.

Although the situation was complicated, the government should decide later this week on the application of profit tax break for companies upgrading their technologies, he added.

However, recently one of the Lithuanian central bank analysts said to one of the reporters, most likely off the record, that only a panic could trigger the collapse of the Lithuanian banks.  Having in mind that this Sunday Lithuanian is going to have Parliament elections such happening could have not only precocious to the banking system but also would certainly affect the composition of future Parliament.

Some since of this possible panic are apparent.  The Lithuanian central bank governor acknowledged on Tuesday that panic-spreading rumours and SMS messages had scared some people into withdrawing part of their deposits from banks.

“A part of deposits have been cancelled. I think that it will be those people who panicked and lost interest [on their deposits] who will suffer from this, “the chairman of the Bank of Lithuania’s board, said during a meeting of the Industrialists’ Confederation and the BNS reported.

Sarkinas said that special services were searching for the authors of the panic-spreading messages. “Our services are working to find the sources of these messages. I think it is just a matter of time,” he said.

Despite the withdrawal of deposits by some people, the latest data from the central bank show that on Oct. 1 through 3, the total amount of private individuals’ deposits at the country’s banks increased by 57 million litas (EUR 16.5 mln) and business customers’ deposits rose by 15 million litas.

Sarkinas noted that the banking system’s capital adequacy was 12 percent in early September, compared with the required 8 percent.

Lets hope that the 2002 Presidential election will not repeat itself.  And we all hope that our mother banks in Scandinavia are going to do well.  At least until elections!

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Entry filed under: Baltic States, Economics, Estonia, EU, Finland, Iceland, Latvia, Lithuania, Northern Europe, Politics, Scandinavia, Sweden.

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