Business loan availability in Lithuania

The Bank of Lithuania announced the first half-year report covering the loan portfolio trends. Business loans portfolio increased by 2% during the first two quarters and bank survey shows expectations for further growth. One of impacts for slow recovery was bankruptcy of local bank Ūkio bankas and closure of AS UniCredit Bank Lithuanian Branch. Although commercial banks claim that lending policies are less stringent than 2-3 years ago, loosing these two banks means that small and medium-sized businesses have fewer opportunities to obtain bank credit. Firstly because UniCredit was more active in SME financing. Secondly Ūkio bankas had 7% market share which leads to tangible lower business loans supply. Lending policies are less stringent in form of lower interest rates and collateral requirements. The latter is still higher than before the economic downturn and only really liquid collateral is accepted. Companies without it or with illiquid collateral can apply to guaranty agencies, however it is long and resource consuming way.

Another source for business loans is credit unions. Unions were taking risky projects even during after crisis period and their business loan portfolio was growing for a long time until last official report (2nd quarter) when it decreased. This came from much tighter regulation and differential capital requirements by Bank of Lithuania for credit unions as well as by decrease in number of working credit unions.

Even though banks’ lending policies are getting milder and business loan portfolio size is forecasted to continue increasing, many companies will still not qualify for bank or credit union loan. In previous survey of commercial banks by Bank of Lithuania results revealed expected increase in demand for business loans of 38%; however portfolio grew only by 2%. Furthermore current survey shows that increase in demand is going to be even bigger for next period and is estimated at 60%. As a result business loans portfolio will be increasing; however big part of this demand will not be satisfied by banks and credit unions.

The situation when there is big gap between supply and demand of bank loans creates favorable environment for non-banking sector such as microloan companies. Even though in Eastern Europe micro lending for businesses takes a stable and substantial proportion from the overall issued loan amount, in Lithuania and the rest of the Baltics this sector has developed only during the few past years. As for example micro lending company Capitalia that operates in the market only since year 2010 has already issued over 300 business loans in the Baltic States and more than 200 loans only for last year. The number is simillar to the average number of loans issued by one Lithuanian commercial bank, which indicates substantial unmet demand for the particular loan type.
Published by at. 13:26