Fitch Ratings said estimates of assets at Bankas Snoras AB, which the government took over last week, may be lowered because Lithuania’s fifth-largest bank didn’t set aside adequate reserves to cover bad loans.
Corporate loans, mainly for real-estate projects, are the “most problematic,” with some related to the bank’s shareholders, Vladimir Markelov, a Moscow-based analyst at Fitch, said today in a phone interview.
“The asset quality was extremely poor,” Markelov said. “The loan book was under-provisioned,” with bad, overdue and non-performing loans accounting for 135 percent of the bank’s total equity in May.
Lithuania took Snoras over on Nov. 16, citing solvency issues. Fitch cut the lender’s credit rating to C from B+ because the takeover involves losses for creditors. The government is seeking to split Snoras into two banks with good and bad assets. The bad bank will file for protection from creditors, while an investor will be sought for the good bank, which will house higher-quality assets.
Fitch may cut Snoras’s rating further -- to Restricted Default -- on Nov. 24 should the central bank confirm losses for creditors, Markelov said.
‘Looking Like Cancer’
The shortfall in Snoras’s assets may be more than the initial 300 million-euro ($405 million) estimate, central bank governor Vitas Vasiliauskas said today.
“We thought it was flu, but now it’s looking like cancer,” he said.
Some securities reported as assets don’t exist, according to the regulator. The Prosecutor General has opened an investigation into possible fraud and embezzlement.
“It’s very difficult to assess the quality of assets within a few days,” meaning the central bank may uncover more holes in the coming weeks, Markelov said.
No public money will be required to save Snoras because the bank has sufficient assets to cover insured deposits, the Finance Ministry said. Uninsured liabilities, such as bonds, will receive “a substantial haircut,” it added.
Insured liabilities account for 1.4 billion euros, compared with a total of 2.36 billion euros in assets at the end of September, it said.