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Lithuanian Deposits Reach Record as Debt Crisis Forces Savings

Aug. 27 (Bloomberg) -- Lithuanian bank deposits surged to the highest level on record in July as businesses and households responded to Europe’s debt crisis by increasing savings.

Deposits rose by 668.3 million litai ($362.9 million) from June to 44.3 billion litai, the Lithuanian Banking Association said in an e-mailed statement today. Loan portfolios shrank by 166.2 million litai from June to 53.9 billion litai, it said.

Lithuanians are holding on their money and businesses are postponing investment plans as the debt crisis clouds the economic outlook. Bank profitability is being eroded by low demand for credit, Stasys Kropas, head of the banking association, said in the e-mail.

“Banks are undergoing a process that can be defined as a crisis of deposits, and July was a perfect illustration of this,” Kropas said. “The crisis in this case is not typical, there’s no lack of deposits. On the contrary, deposits at banks are too high.”

Economic growth slowed to a preliminary 2.1 percent in the second quarter from 3.9 percent in the previous three months.

“That’s an alarming signal -- bank liabilities are growing, while opportunities to employ the money aren’t improving,” Kropas said. “Banks hold piles of short money that are expensive to keep when there’s no demand for short money on the market.”

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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