Survey of banks: no plans to tighten lending standards

Photo of Judita Grigelytė (VŽ).

In the second quarter of this year, commercial banks operating in Lithuania slightly tightened their lending standards, and assessed the financial condition and prospects of companies and households a little worse, according to the latest survey.

According to the data of the survey conducted by the Bank of Lithuania (LB), a significant contraction of credit demand or a tightening of lending standards is not expected in the near future.

“Banks predict a slight decrease in the demand for loans, although lending standards should not change substantially. They have also become more cautious about the construction and real estate sectors. However, the banks predict that housing prices will continue to rise,” Viktorija Grybauskaitė, economist of the Macroprudential Analysis Department of LB, is quoted in the report.

A change in risk assessment due to Russia’s war against Ukraine led to banks slightly tightening lending standards for companies in the second quarter. However, the change was softer than expected in the first quarter of this year. Conditions for loan companies also tightened slightly, while for households they did not change.

Looking ahead, a few banks still predicted a likely tightening of lending standards, but most said lending standards for businesses and households would remain largely unchanged.

The demand for loans to companies grew due to the increasing need for working capital, the need for investment financing decreased slightly. Demand for household loans has continued to be stable in recent quarters.

Credit demand expectations are slightly down, with several banks forecasting a decline in demand for business and housing loans, while one sees a decline in demand for consumer and other loans. With the rise in the base interest rates set by the European Central Bank, some banks saw a possible increase in credit risk in consumer and housing loan portfolios.

The financial situation of most sectors of the economy was mostly assessed as average, and the development as stable, but in general, compared to the previous quarter, the assessment became worse. In the second quarter, banks assessed the financial situation of trading companies and households most favorably.

Banks continued to restrict lending to hotels and restaurants, which have been hit hardest by the pandemic, but the sector’s financial situation was assessed better during the quarter. Meanwhile, the assessment of the financial condition of the construction and real estate sectors worsened.

With housing prices still rising rapidly and buyers’ expectations not diminishing, all the banks that participated in the survey stated that they see imbalances in the housing market. Banks’ expectations regarding housing prices did not change substantially – most of them expected that both new (5-10%) and old (up to 5%) construction housing would become more expensive in the coming years. One bank indicated that the prices of new construction housing could decrease by up to 5%.

Four commercial banks operating in Lithuania and five branches of foreign banks participated in the survey.

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