Lithuanian Banks Press to Join ECB Review Amid Euro Bid

Lithuania’s three biggest banks are pushing to join the European Central Bank’s balance-sheet assessment as the Baltic state steps up its bid to become the 19th country to adopt the euro.

The Lithuanian central bank approached the ECB last month and asked for the local units of SEB AB (SEBA), Swedbank AB (SWEDA) and DNB Bank AB (DNB) to undergo an asset-quality review using the ECB’s methodology before the country joins the currency bloc, Aldona Jociene, director of prudential supervision at Vilnius-based Lietuvos Bankas, said in an e-mailed reply to questions.

“A final decision on the timing and preparatory work with the ECB is expected in the spring,” Jociene said. “Banks are being informed on how the review will be implemented. Also, the central bank is holding meetings with independent experts who are likely to participate in the process.”

Lithuania expects an EU decision by July on its push to adopt the euro. If that bid is successful, Lithuania’s top three banks could fall under ECB oversight less than two months after the Single Supervisory Mechanism is fully operational. For that to happen, they’ll have to pass the assessment first, Jociene said.

The ECB, which assumes full oversight of euro-zone banks in November, is working with local regulators on a yearlong review of the largest lenders to ensure they have enough capital. Auditors are beginning to examine banks’ accounting procedures and to scrutinize their loan books.

Stress Test

Since Lithuania won’t adopt the euro until Jan. 1 at the earliest, it may have to wait at least until it makes a formal application for euro accession before the ECB could consider including the country’s banks in its review. And while the European Banking Authority will conduct an EU-wide stress test this year in coordination with the ECB, it included no Lithuanian lenders in its sample group.

Vitas Vasiliauskas, Lithuania’s central bank governor, said on Feb. 18 that the assessment would be conducted this summer and that the country’s banks would pass muster.

SEB expects no surprises from the ECB’s assessment. “The results obtained so far from stress tests we’ve been carrying out ourselves and those performed by the Bank of Lithuania indicate sustainability of our capital base,” Jonas Irzikevicius, chief financial officer of the Lithuanian unit, said in a reply to questions.

“We keep continuously strengthening it further,” he said. “Therefore we do not think that similar exercise results might require any additional capital.”

‘Financial Resources’

The ECB’s assessment may, however, require “more human and financial resources” from the bank, he said, reflecting a concern among many lenders about the cost of the exercise.

Swedbank is also “confident” that its Lithuanian unit’s capital base is “more than sufficient,” and the lender won’t face “major challenges” in the review, said Chief Financial Officer Marius Adomavicius.

“Practical steps of the review are being arranged by the Lithuanian central bank and we hope that this will be carried out in the context of preparation for euro adoption,” he said.

DNB didn’t immediately comment when contacted by Bloomberg News. An ECB spokeswoman declined to comment on the matter.

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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