Lithuanian banks eye up to 6 percent loan portfolio growth and profits this year

"The first thing I want to say is that the financial system is stable," Vitas Vasiliauskas, the chairman of the Bank of Lithuania's board, said at a news conference presenting the central bank's 2012 Financial Stability Review report.

"The banks themselves forecast 2-6 percent (profitability)," he said.

The country's banks posted around 145 million litas (EUR 42 m) in net profits in the first quarter of this year, Vasiliauskas said.

Lithuania's financial system is stable, with the impact of Snoras' bankruptcy having proven short-lived, but the global economic development requires special vigilance, as the greatest threats are now coming from outside, the governor said.

"Risks are abundant," Vasiliauskas said, adding that the key risks are the eurozone crisis, global trade contraction and the energy resource crisis.

"All kinds of shocks are possible in today's world. We need to react to various developments. Being a small country, Lithuania is highly dependent on storms in international markets. Oil prices are falling, but the situation may change. We know Iran's situation," he said.

Stress-testing results have shown that the Lithuanian banking system is capable of withstanding severe shocks, but capital buffers need to be further increased, the governor said.

In the most unfavorable scenario, which would be that of falling demand for Lithuanian exports and increased risk premiums, around 260 million litas in additional capital would have to be attracted by the end of 2013 for the capital adequacy level in each domestic bank to be maintained above the minimum required level of 8 percent. Also, that would reduce the country's GDP by 12.7 percent, he said.

The banks would need around 30 million litas in additional capital if international trade volumes declined, because that would lead to the worsening of debtors' financial situations and of the quality of the loan portfolio. The GDP would contract by 5.4 percent.

Speaking about Snoras' collapse, Vasiliauskas said the impact of the bank's bankruptcy is almost non-existent.

"In principle, there is no impact any more. Lithuania's borrowing costs are the biggest indicator. There was an increase during the Snoras events, but the yield spread on Lithuanian and German government securities is now half as large as it was in 2011," he said.

"There is no problem as regards depositors either," the governor said.

Speaking about the loan market, Vasiliauskas said that housing loans are "quite cheap" now, but noted an increase in bad loans in the housing loan market.

"There is an increase (in bad loans) in the housing loan segment," he said.

The central bank's financial stability reports, published once in a year, are aimed at assessing potential risks to Lithuania's financial system and identifying the possibilities to counter these risks.