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Lithuania: Banking Feels Its Way Towards A New Role

Vilnius, 20 August 1997 (RFE/RL) -- Lithuania's banking sector, recovering from the crisis of 1995, is still tentatively groping its way towards a fuller role for itself in the nation's economic life.

Battling to win back the public's trust after the series of collapses, the commercial banks are seeing their level of deposits swelling again. With the situation normalising, the banks are going to have to decide on their future strategies for growth.

Some can be expected to choose the path of retail banking and servicing of small business, others will orient themselves towards the more high-flying sector of corporate banking and investment.

An RFE/RL correspondent in Vilnius reports that one phenomenon noted by the banks increasingly through this year is the amount of deposits arriving not in Lithuania's national currency the litas, but in foreign currencies. There is in addition a rising tide of demands for loans not in the litas but also in foreign currencies.

This growing public nervousness about dealing with the litas is doubtless linked to the government's intention to decouple the national currency from the dollar, and let it float freely, which would probably result in devalution.

At present, the granting of loans directly in foreign money is not permitted by the authorities on the grounds that this would undermine the stability and credibility of the litas. Commercial bankers are now actively debating what should be done about this, and whether the authorities should ease their rules to allow local banks to lend credits to Lithuanian businessmen in foreign currency for local needs. The bankers are complaining that they can not put to use the cheap foreign currency resources which they are managing to attract. They want to be able to earn on this money by issuing credit lines and in other ways.

At the same time, having burned their fingers in 1995, the banks are following more conservative and careful credit lending policies. This may reflect a new prudence, but it too has its down side. According to Eduardas Vilkelis, the president of the Lithuanian Commercial Banks Association, the sum of money that has gone from Lithuanian banks to deposits in foreign banks and financial institutions during the last six months is worrying. He says that by sending those assets for instance to safe Swiss banks, Lithuanian bankers may sleep better at night, but it's tending to deprive Lithuanian businessmen of the credit funds they need for growth.

By the middle of this year Lithuanian claims on foreign banks stood at more than $250 million. This compares with deposits of $185 million at the end of last year, which means that during the short period, the amount of Lithuanian banks' money kept in foreign banks has increased by $65 million.

One way out of the dilemma is to make lending to Lithuanian individuals more attractive. The government is moving to do this by creating guarantee funds. These funds would aim to reduce the risk to banks of lending to private business. The funds would invite applications from Lithuanian companies, and would examine the projects for risk and suitability. Then the banks would be approached, with the risk being shared between the parties involved.

The Ministry of Economy says that the first of the guarantee funds will be established very soon, with a capital of $5 million, half of which will be provided by the government.