Lithuania Closing Lenders Removed Threat to Industry, IMF Says

Lithuania’s decision to close four credit institutions removed risks from the nation’s financial industry without destroying public trust in banks, the International Monetary Fund said.

“This has removed an important threat to financial stability and strengthened the overall soundness of the financial system,” the IMF’s executive board in Washington said in a statement on its website late yesterday.

Lithuania’s central bank has unified financial regulators and strengthened bank supervision since Vitas Vasiliauskas became its chairman in April 2011. In November 2011, the regulator shut Bankas Snoras AB for suspected misappropriation of assets, while this year it closed Ukio Bankas AB and two credit unions, saying risky lending to related parties had made them insolvent.

Having more supervisory staff, more inspections and stricter rules for customer due diligence at credit institutions has set the stage for loan growth in Lithuania after four years of shrinking portfolios, the IMF said in a staff report that it published with the statement.

Stress tests show that even under “severe conditions” such as large declines of exports and output or large increases in interest rates, capital adequacy in the Lithuanian banking industry would remain “well above the regulatory minimum,” according to the IMF report.

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