- It's been one year since the Snoras collapse. What have we learnt from this story?
- The system became more transparent, we managed to rebuild trust in it. We witnessed a growth in deposits right after the New Year, they are now at their all-time height. It had no effect on public borrowing. We have the lowest interest rates, VILIBOR. The effect on macro figures has also been positive.
The most important lesson is this: One must act resolutely, quickly, and professionally. Secondly, we have tested how legal acts work in practice – and they do. Thirdly, communication is the key. One must talk about everything frankly and openly. We must have topped even Euro Basket, which had taken place that same year, with our press releases.
- What do you think of the way that ordinary people reacted to the affair?
- No one was particularly thrilled about a thing like that, but people had a chance to see that deposit insurance system worked.
It would be naïve to assume that owners of some deposit certificates or uninsured deposits were happy. But court proceedings are underway, people are getting in creditors' line, justice will be carried out by the courts.
The International Monetary Fund has analysed creditors' panic during similar crises. About 10 percent leave the banking system altogether. In our case, the number was only 1.1 percentage point lower, within one month.
If you asked me if I'd do the same, should I have a second chance, I most certainly would.
- We had already gone through one banking crisis, a much more painful one, in 1996. Hadn't we learnt anything from it, if we allowed it to happen again?
- Let's not forget that we might be dealing with criminal activities here. That is nothing particularly exceptional or new. Let us recall financial pyramids that operated in the United States for a long time and on a much grander scale. Unfortunately, there are people who abuse the trust that is the foundation of the entire banking system.
- If the Bank of Lithuania had missed something in Snoras case, or hesitated longer, what might have been the consequences?
- We could be dealing with 2 billion litas of lost deposits or even more. It didn't take much brain to see that the bank was inflating – deposits, loan portfolio, consumption through bank. It could have been worse – for everyone except, of course, the two gentlemen who are now in London (former Snoras owners Raimondas Baranauskas and Vladimir Antonov).
- Are you happy with the work of Snoras administrators?
- Our (the Bank of Lithuania's) plan ended with filing for bankruptcy. The rest is up for creditors – a task for the joint effort of Snoras creditors and bankruptcy administrator. We are dealing with an international bankruptcy of a big bank – Snoras was not only operating in Lithuania. To my mind, we needed an administrator with international experience. We might have faced many risks, had we failed to invite an outsider administrator.
- But can Lithuania afford to hire foreigners?
- These are all “what if” speculations. But it is a known fact that bankruptcy administration in Lithuania has its own problems. Trust me, the Bank of Lithuania could not take risks with Snoras bankruptcy. The price-quality ratio was acceptable. We can discuss nuances, but everything is now up to the creditors.
True, we would prefer to see the process move forward faster. We are greatly anxious about the sales of (Snoras-owned) Finasta bank. We haven't been officially approached about its purchase. That looks strange. There were media reports about interested parties. Our supervision agency had an unofficial meeting with potential buyers in the beginning of summer. But summer came and went, Christmas is here, and we still don't see any resolute moves.
- How much will Snoras bankruptcy cost to the state and how much money in uninsured deposits were lost by individuals and companies?
- I would not like to isolate the state. Let's talk about creditors in general. I believe that the losses are down to what happened before bankruptcy, not to bankruptcy itself. Bankruptcy is only the result of a crack that opened up due to irresponsible and possibly criminal actions before it.
When it comes to creditors and their losses, it will all depend on how we manage to realize Snoras assets. The most valuable among them is Snoras loan portfolio. Moreover, there is a case pending in the Constitutional Court over the line-up of creditors. Once the ruling is in, we will be able to discuss creditors' losses.
The key issue here is whether the state-run company Indėlių draudimo fondas (Deposit Insurance Fund) can be treated as an ordinary creditor. It is the backbone of the deposit insurance system which is tasked with providing guarantees to non-professional market players. I cannot see how the Fund could be treated like just an ordinary creditor.
- Last autumn, MP Kęstutis Glaveckas assured that Snoras assets would soon be sold off and all the money returned to the state. Unfortunately, it did not turn out that way. When and how do you think this story will end?
- The bankruptcy administrator is working fully in the interest of the creditors of Snoras and they together make decisions on when to sell the assets. We can see the situation in financial markets – it would be hard to hope for the best price at the moment. International players who could come to Lithuania are facing problems in their respective markets. I do not believe now is the best time to sell.
Bankruptcies are usually long processes. The initial scenario was splitting Snoras into a good bank and a bad bank. The good one is easy to sell, while the bad one dies a prolonged death. Instead, the decision was made to liquidate Snoras. Quick liquidation is unlikely, especially since creditors are involved in court proceedings. Until they are over, the end of the main case is hard to hope for.
- How healthy is our banking system at the moment? Is there a need for more regulation?
- The system is generally healthy. It would be reckless of me – and untrue – to claim that a thing like that cannot repeat itself. Anything can happen in this world. But every crises contributes to better understanding, readjustment of regulation mechanisms. In any case, if a similar situation arises again, we will act just as resolutely.
- When Ūkio Bankas took over Žalgiris Stadium in Kaunas and surrounding properties, analysts with Swedbank Markets said they would not be valuing the bank's shares, since the acquisition “raises questions about the overall quality of Ūkio Bankas' loan portfolio.” What are the bank's clients to make of it, after this and previous announcements about losses and bad loans?
- I am familiar with the transaction. The Bank of Lithuania monitors closely asset management processes and takes note of efforts to optimize them, in this bank and in others alike. In this case, there was a change of asset form in Ūkio Bankas balance-sheet – in place of loans, the bank took direct control of the assets that were financed by its money. The move allows for more efficient actions. Time will show how effectively it will realize this opportunity. We, as a supervisory body, will continue to closely observe all developments.
- Let's imagine a hypothetical situation – another bank gets into trouble. How would deposits be compensated for? Snoras bankruptcy must have dried up the Deposit Insurance Fund.
- After Snoras collapsed, the fund was left with 1.7 billion litas, but the state did its duty. I do not see why the mechanism should not work in case something happens again. There are commitments that are being met, in one way or another.
- Perhaps one of the more deplorable sources for the Snoras affair is the financial illiteracy of our people?
- There are no bounds to perfection. Financial education is extremely important, the Bank of Lithuania has work to do in this area. I am sometimes surprised by excessive risks some people take. We see credit unions that promote themselves aggressively and collect funds offering high interest rates. We know only too well that money is aplenty in the market, banks keep interest rates at all-time lows – they are drowning in liquidity – while individual credit unions aggressively collect deposits, inflating their assets. In that respect, deposit insurance after Snoras collapse did a disservice to the people – they are overconfident that the system works. Of course, that is the way it should be. But I, personally, would double-check anyone to whom I entrust my money.
- Do you keep your money in Lithuania?