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UPDATE 1-Lithuania to raise deposit insurance to 100,000 euros

Wed Oct 8, 2008 6:16am EDT

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(Adds quotes from PM, finance minister)

VILNIUS, Oct 8 (Reuters) - Lithuania's government decided on Wednesday to propose raising the insurance level for bank deposits almost five-fold to 100,000 euros for one year, a spokesman said.

The government has urged parliament to debate the proposal urgently, the spokesman added. The level chosen by Lithuania to guarantee deposits is double that adopted by European Union finance ministers at a meeting this week.

"It is very important to ensure citizens' confidence...The increased sum will cover almost all our deposits," Prime Minister Gediminas Kirkilas, facing an election on Sunday, told a news conference.

However, no extra funds will be paid into the deposit insurance fund. "Because this is a temporary decision... we think there is no need to increase payments and disturb banks," Finance Minister Rimantas Sadzius said.

The state-owned deposit insurance fund has 1.45 billion litas ($572.4 million) in its coffers and covers 36.5 billion litas worth of deposits, the head of the fund told Reuters.

Sadzuius said the decision not to increase payments to the fund was also based on a risk assessment. The new scheme of deposit insurance could be introduced after the European Commission drafts new regulations.

"We expect one year to be enough to see stabilisation of the banking sector," Kirkilas added

"There is no danger for any Lithuanian bank to go bankrupt. We monitor the situation constantly," Kirkilas added.

Deposits are currently guaranteed up to 22,000 euros.

The central bank said this week no bank was in distress, but that if necessary the central bank could provide funding of 1 billion litas ($394.8 million).

More than 60 percent of Lithuania's banking sector is dominated by Scandinavian banks SEB (SEBa.ST), Swedbank (SWEDa.ST) and DnB Nord (DNBNOR.OL). Local banks include Snoras (SRS1L.VL), Ukio (UKB1L.VL) and Sialiu Bank (SAB1L.VL). (Reporting by Nerijus Adomaitis, writing by Patrick Lannin, editing by Victoria Main)



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