Lithuania to Borrow for Ukio’s Deposit Insurance Payouts

Lithuania’s government plans to lend between 500 million litai ($193 million) and 600 million litai to help the state deposit-insurance fund meet obligations related to insolvent lender Ukio Bankas AB.

The bank’s activities were suspended on Feb. 12 because of risky lending to related companies, according to the Bank of Lithuania. Ukio’s liquidation could cost the deposit-insurance fund as much as 2.7 billion litai, according to central bank data based on the amount of insured deposits.

The fund is “rather empty” following the 2011 bankruptcy of Bankas Snoras AB, Finance Minister Rimantas Sadzius said today on Lithuania’s LRT public radio in the capital Vilnius.

The central bank said yesterday it plans to sell Ukio’s assets and liabilities to Siauliu Bankas AB, reducing the obligations for the deposit insurer to an estimated 800 million litai.

The deposit insurance fund would seek to recover its money over time through bankruptcy proceedings for the “bad” part of Ukio’s assets that won’t be taken over by Siauliu, according to Sadzius. “This really is the best of the alternatives we had,” he said.

The finance ministry plans to raise the money by borrowing on the domestic market, spokesman Giedrius Sniukas said in an e-mail. The government had planned to borrow about 7 billion litai this year, sourcing 75 percent of the debt domestically.

The Finance Ministry sold 225 million litai of one-year Treasury bills at an average yield of 0.776 percent yesterday in the Baltic nation’s biggest domestic debt auction in more than seven years.

The cost to insure Lithuanian debt against non-payment using five-year credit default swaps rose to 107 basis points yesterday from 103 basis points, the most since Jan. 1, according to data compiled by Bloomberg.

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