Lithuania’s decade of growth in its banking sector can be attributed to three factors. First, professional banking was born in the second half of the 1990s, with the foundation of some of the first commercial establishments in the former Soviet Union that benefited the public and not a limited circle of friends.
Second, even before EU accession, foreign mergers and acquisitions brought in the capital and experience needed to create competitive and forward-thinking organisations.
And third, public trust – previously shaken by political and economic turbulence – is now so high that the sector, and especially the Bank of Lithuania, outscores religious institutions in public opinion polls.
Innovation required
As a consequence, a handful of banks have emerged as leaders in a fast growing but competitive climate. Both products and process innovation are required to maintain an edge.
Giedrius Dusevicius, CEO of AB Bankas Hansabankas, the Lithuania winner of The Banker Country Awards 2005, says that EU accession in 2004 also brought about a change in the market: “Joining the EU inspired both the banks and clients to become more active, with more services being offered and sought after.
“Lithuania’s banking clients are changing. The customer profile is the same, but we’re seeing an evolution. The savings business is becoming more interesting, and people are thinking of their future now.”
Keeping abreast of increasing client sophistication has meant paying constant attention to capabilities in IT and related components. “Hansabankas was the first to introduce chip-cards in the country, and our ATM terminals are now chip compatible too. Also, we’ll be introducing WAP banking this year,” Mr Dusevicius says.
WAP banking is expected to prove popular, as Lithuania leads the world in mobile phone ownership, with 138% penetration. “Also, 80% of the bank’s payments are now e-payments, up from 20% in 2002,” he adds.
Audrius Ziugzda, president of SEB Vilniaus Bankas, says that his bank’s proactive approach has helped it create markets. “This takes a lot of education, and we work on this in various ways. For instance, we developed a financial portal to promote online discussion and even debates with our house analysts. The upshot of this is that we remain competitive, and we make life easier for our [Lithuania’s] people, too.”
Mr Ziugzda points out that this has served SEB Vilniaus Bankas well, particularly in developing bond and funds markets, despite initial doubts, both in the bank and in the public. For instance, as the Lithuanian government reduced its bond placements, which had been very popular, the bank decided to step in with corporate bonds as a replacement.
Early concerns
“There were concerns in the beginning whether it would work at all, but the offerings were well received after the public was educated on the product,” he says. This has led to the bank releasing new investment products, and at the beginning of 2006, SEB Vilniaus Bankas held 70% of the Lithuanian investment fund market and 100% of the structured bond market in the country. “In an environment this competitive, the situation won’t last for long, but we’re always pushing forward.”
AB Bankas NORD/LB, which in March announced index-linked bond issuances up to LTL250m (€72m), Lithuania’s largest to date, is part of that environment. Vygintas Bubnys, deputy chairman of the management board and executive vice-president, says that offering newer and better products “is just part of the job”. However, he says there is a noticeable difference between the Western-owned banks in the top three positions in Lithuania, and their locally or Russian- owned counterparts, which tend not to be so active.
Dr Bubnys points out that this difference is part of the difficulty new entrants into the market would face, as purchasing the assets of one of the existing smaller banks would still leave the new challenger a long way to go to achieve noteworthy results. Market penetration is below EU averages, so: “Is there room? Yes. Profit? No. The retail market is very competitive here, and long-term mortgage rates are low-profit products. If someone came in with niche activities and innovation, then they would have a chance.”
Right strategy
Hansabankas’ Mr Dusevicius agrees: “If your strategy is right, there’s still room.”
Meanwhile, Lithuania’s bankers have been involved in foreign expansion of their own. SEB chose its Lithuanian counterparts to lead its expansion into Ukraine when JSB Agio Bank was purchased in 2005. “We understand the mentality on both sides,” Mr Ziugzda says, adding that many Lithuanian businessmen are heading into Ukraine as the business environment improves there.
NORD/LB’s Dr Bubnys notes Lithuanian businesses interest is looking eastwards, and says that it makes practical sense to look at Belarus, as it is only 40km away from Vilnius, but “the political risk is still too high, and no deals are being backed”.
All three bankers were quick to note the public’s level of trust in the Bank of Lithuania. While the central bank often takes a strict approach to regulation, it is seen as safeguarding the system, and engages in dialogue with market operators. Lithuania’s adoption of the euro, still scheduled for January 1, 2007, is a sticking point, as the central bank has told banks they will not be subsidised for the costs associated with the currency changeover.
Mr Dusevicius says the country’s largest retail bank, Hansabankas, has examined the matter, in co-operation with banks in other countries that have adopted the euro, to be able to streamline the process.
Despite the intense competition between the three leading banks, they still work together on several levels.
First, the Lithuanian Banking Association plays a healthy role in communication with the Bank of Lithuania. Also, the banks were instrumental in the foundation of Lithuania’s ‘Window to the World’ programme, which works to increase public access to the internet.
Public access
To date, 300 public access points have been created in libraries and other public places in towns and villages within Lithuania. It helps all the banks by making it easier for clients to pay bills instead of travelling to towns to do their banking.
While NORD/LB’s Dr Bubnys points out that face-to-face contact is important to Lithuanians and that the option for this is one reason why he believes that internet-only banks will not work in the country, SEB Vilniaus Bankas’ Mr Ziugzda also sees the upside of bringing the internet to the countryside.
He says: “A couple of years ago, people in villages couldn’t imagine being able to do their banking in this way. Nowadays, 50% of our internet banking comes from outside cities.”
