While banks are already charging higher rates on loans, they are slow to raise interest rates on deposits. Lithuania’s banking regulators say this is not okay.
The European Central Bank raised interest rates four times last year, with commercial banks passing the raises to their debtors: mortgage rates rose to 4% and consumer loans to almost 9%.
However, depositors have yet to see a corresponding rise in interest rates they get from banks.
Swedbank currently offers 0.2% interest on fixed-term deposits, while SEB offers 0.6%.
The Bank of Lithuania, which supervises commercial banks, says that interest rates on deposits should be higher.
“We would like to see a faster growth of interest rates on deposits. Deposit rates offered by big banks are lagging behind,” says Gediminas Simkus, chief of the Bank of Lithuania.
Opposition MP Algirdas Butkevicius, vice-chairman of the parliamentary Budget and Finance Committee, is even more strident and promises to initiate a parliamentary probe on the issue.
“This behaviour of commercial banks is, to say the least, obscene, and if we look at it financially and economically, it is predatory. As far as I know, the semi-annual profits of commercial banks have only increased,” Butkevicius said.
The Central Bank says it has already urged commercial banks to up their game.
“It is not acceptable for the Bank of Lithuania or the public that the growth on the deposit side is really slower, more inert, compared to what we see on the loan side,” says Simonas Krepsta, a member of the Board of the Bank of Lithuania.
SEB and Swedbank did not comment for LRT TV, saying that specialists were on holiday during the Christmas period.
Some economists say that there is no reason for big commercial banks to up interest rates on deposits.
“Banks do not need to raise additional money at the moment to prepare for a crisis, stabilise their finances or increase their capital. The second aspect is that, as some kind of crisis is coming to the European and Lithuanian economies next year, banks will accordingly lend less to businesses and individuals, which again means banks will not need as much capital to expand their businesses,” believes Aleksandras Izgorodinas.
“Basically, competition will do its job, and we can see that in medium-sized and smaller banks, interest rates are already at 1% and 2%,” says Krepsta.
Smaller banks such as Inbank, Fjordbank and General Financing Bank are offering higher interest rates, approaching 3% for 12-month deposits.
“Interest rates on fixed-term deposits are rising, but they are not rising in sync with the European Central Bank’s rate hikes, which is normal because deposit rates are the result of supply and demand,” argues Valdas Bernatavicius, chief financial officer of General Financing.
Four credit unions also offer 2.9% annual rates for one-year deposits. For a five-year deposit, some offer more than 3.5%.
Rutenis Sukevicius, of the Central Credit Union, says that credit unions do not feel the glut of cash, like the big banks, which is why they offer better rates.
The Bank of Lithuania also urges depositors to be proactive and move their money from current accounts to term deposits, saying that this can help to move the situation forward. (LRT/Business World Magazine)