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Specialists see various reasons why Lithuanians have to pay banks much more for the same services.
They are said to be riskier clients and the level of interest depends as much on the competition from banks as on how much they borrow. Also, it is probably a positive that Latvians and Estonians are paying even more interest on loans to banks.
The euro is the same, but much more expensive for Lithuanians
According to the European Central Bank (ECB), last year Lithuanians paid an average of 2.25% for ordinary home loans. annual interest. That is about 60 percent. more than the euro area average of 1.41%.
For the sake of clarity, let’s say that last November, the average Lithuanian and a euro area resident received a loan of the same size and term from the bank for the purchase of a house, for example, 100 thousand. for ten years.
Lithuania will pay a total of around LTL 11,000 for the loan to the bank. interest. That’s about 4 thousand. more than the average euro area resident would pay.
The average interest rate of a new consumer loan for 1 to 5 years in Lithuanian banks was 12.36% last November. For the average population of the euro area, it is double: 4.76%.
So those 10 thousand. A Lithuanian who has obtained a loan worth 3,000 euros over five years will pay the bank a total of at least 3.1 thousand LTL. interest. This is almost three times more than the average European (would pay 1.2 thousand euros).
By the way, according to data from the Bank of Lithuania (LB), banks in our country paid an average of 0.12 percent for household deposits last November. interest.
Consequently, the commercial banks of our country borrow from the population tens or hundreds of times cheaper than they lend to the same population.
Blame the previous crisis?
ALC, responsible for the Lithuanian credit institutions market, did not respond to the questions of the tv3.lt portal, who and what should be done so that the population does not overpay for loans, why this has not been done so far, why the actions of LAC and the ECB do not help reduce credit.
However, Jokūbas Markevičius, Director of the Financial Stability Department, reported that the size of interest rates is determined by many factors. These include the price of money paid by the banks themselves, the risk assessment of the borrowers or the competitive environment.
“For example, when some banks reduce their scope of operations, change their financing structure or withdraw from the Baltic market in general, in 2018-2019, interest rates on loans have increased, but then they have stabilized and have been decreasing slightly recently, ”explained J. Markevičius.
According to him, in order for credit institutions to operate in a stable manner when setting interest rates, they must assess the borrower’s risk. Risks assessed differently may affect the interest rate differential between the Baltic states and the euro area average.
“Credit risk also includes the level of non-performing loans in banks: the greater appetite for risk in credit institutions is usually higher and credit losses are higher. Currently, the level of non-performing loans in Lithuania is historically low and close to the euro area average, but there have been particularly high increases in the long term.
During the pandemic, potential borrowers and the sustainability of their income due to increased risks are evaluated even more closely, but so far we have not seen an increase in interest rates and the level of non-performing loans has risen considerably. ” commented the Bank of Lithuania.
He predicted that due to the competitive environment, new financial institutions in Lithuania will increase consumer choices in the long term.
“During the past year, LB has licensed 5 specialized banks, more than 120 payment and electronic money institutions, 22 mutual loan platforms and crowdfunding. Some of these institutions already provide services to clients, some are preparing intensively for this, ”reported J. Markevičius.
According to him, competition in the mortgage market has already intensified as a restructured bank, two smaller banks and some credit unions became more active in making new loans.
In Lithuania, the share of smaller housing lenders in the flow of new loans increased fivefold, from about 3%. to almost 16 percent.
Latvians and Estonians pay even more
Scandinavian banks have the largest banking services market in the Baltic States. In Lithuania, like other credit institutions, they are represented by the Lithuanian Banking Association (LBA).
The LBA did not respond to a question on the tv3.lt portal about which higher interest rates in Lithuania are determined by the business models and policy of Scandinavian banks to maximize profits in these countries.
In his comment sent by its president Eivilė Čipkutė, he pointed out that comparing the situation with the criterion of average variable interest rates, in Lithuania in 2020. in November, they represented 2.2%, compared to 1.4% in the area of the euro.
“However, looking at individual countries, Lithuania is not exceptional. On the other hand, comparing our market with other similar ones, such as Latvia and Estonia, the interest in Lithuania is the lowest,” explained the head of the association.
She believes that it is currently best to discuss interest rates at the EU level by looking only at the market of one country or comparing similar ones, as the interest rate environment is determined by a variety of individual factors: the country’s credit rating. , the regulatory environment, the lender market and the level of development of the financial sector.
“This applies to both housing and interest on consumer loans,” E. Čipkut comentó commented.
According to her, the stalled EU initiatives of the Banking and Capital Union should be completed so that interest rates are similar in different countries of the eurozone.
“The EU has integrated goods markets, but the service sector is still limited. There are still many obstacles for financial institutions to operate internationally. The integration of financial markets has been severely damaged by the painful experience of the previous financial crisis. ”, Explained the president of the association.
According to her, one of the necessary conditions for the development of cross-border banking and equal interest rates is deposit insurance at the European level.
“The financial sector is in favor of deeper financial integration, but these issues have not been endorsed by the European Council for many years. However, there are indications that the impact of a pandemic may move this initiative from the point of death. “expected E. Čipkutė.
We could have enjoyed it, but …
Kęstutis Kupšys, Vice President of the Consumer Alliance and member of the European Economic and Social Committee, acknowledged that Lithuanians pay much more for loans than other Europeans.
“If the dual quality of food has come to the fore in policy consideration and then taken seriously, there is likely to be a similar advance in the field of services.
Financial services are those that, as consumers routinely point out in surveys, are provided under the most unfavorable conditions and are very often the subject of consumer complaints. They are on the list of critical services that consumers do not trust, ”commented K. Kupšys.
According to him, consumers constantly complain about them for various things. However, the interest on the loan is always the “first fiddle” on the list of financial services. If they are high, it becomes a source of consumer dissatisfaction.
“Consumer dissatisfaction with financial services is always high. Comparable problems: when selling used cars and their service. They are similar levels of complaints and dissatisfaction,” explained the interlocutor.
Speaking of high interest rates, he was struck by the double standards, as Westerners were provided with a low-cost loan service and Oriental consumers at a high price.
“And this cannot always be explained by the level of risk of the country, the consumer or the exchange rate, or that the euro area, not the euro area. Not always, rarely can this be explained. There are no such strong indicators. We have been joining the euro area for a long time and during that time we have been able to enjoy interest rates such that other countries offer better deals to consumers, ”explained K. Kupšys.
According to him, the same problem has been discussed for many years: the concentration of banking services in the three largest banks in Lithuania.
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