July 22, 2009 / 9:52 AM / 10 years ago

Lithuania c.bank head warns banking problems ahead

VILNIUS, July 22 (Reuters) - Lithuania’s banking sector, dominated by Scandinavian banking groups, will see worse times ahead, the central bank head was quoted as saying on Wednesday.

Lithuania’s banking sector posted an aggregated net loss of 628 million litas due to growing provisions against bad loans, Reinoldijus Sarkinas, the central bank governor, was quoted as saying by Baltic News Agency (BNS).

“Apparently now it (the crisis) is coming closer to the banks,” Sarkinas was quoted as saying at a meeting with lawmakers.

A central bank official told Reuters aggregate provisions against bad loans totalled 2 billion litas in the first half of the year, erasing Lithuania banks’ operational profits.

The central bank was to release aggregate banking sector results later on Wednesday.

Despite mounting losses, local banks needed no assistance so far, and the banks were ready to increase authorized capital, Sarkinas told lawmakers.

Scandinavian banking groups SEB (SEBa.ST), Swedbank (SWEDa.ST) and DnB NORD, majority owned by Norwegian DnB NOR DNBNOR.OL, have over 80 percent of market share in Lithuania.

Sarkinas said total credit portfolios shrunk 6.6 percent year-on-year in the first half of 2009.

Lithuania government officials have complained the Scandinavian banks have squeezed credit too much, driving the economy into deeper recession, but the banks said they had to reassess the risk.

Lithuania’s economy nosedived into deep recession after years of strong growth based on cheap credits from the Scandinavian banks.

The Finance ministry has said the economy risked contracting 18.2 percent in 2009, a similar fall as in neighbouring Latvia, which had to apply for international assistance. (Reporting by Nerijus Adomaitis, editing by Mike Peacock)

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