November 6 2008
Lithuania’s central bank said on Thursday it had decided to cut the obligatory reserve ratio for commercial banks to 4 percent from 6 percent to boost liquidity, the first reserve ratio cut for six years.
A spokesman for the central bank said the move would free up about 1 billion litas ($372.4 million) of funds for banks.
Like other financial markets, the small Lithuanian money market has also suffered a liquidity squeeze during the global financial crisis and banks had urged the central bank to cut reserve requirements to free up funds.
(Reporting by Nerijus Adomaitis, writing by Patrick Lannin, editing by Mike Peacock)
November 6 2008
Lithuania’s central bank on Thursday cut reserve requirements for banks as the global credit squeeze finally made itself felt in the Baltic states’ small financial sector.
Analysts say that Latvia, Estonia and Lithuania, with high current account deficits and consumer debts, could be vulnerable to the kind of crisis which has forced Hungary to turn to the IMF, though Baltic leaders have played down this probability.
None of the three former Soviet states has had to launch a bank bailout or feed liquidity to its institutions like bigger nations in western Europe, but local money market rates have steadily risen and liquidity has dried up.
Lithuania’s central bank responded to the problem by reducing its obligatory reserve ratio for commercial banks to 4 percent from 6 percent to boost liquidity, the first reserve ratio cut for six years.
A spokesman for the central bank said the move would free up about 1 billion litas ($372.4 million) of funds for banks. Latvia’s central bank has also said that it will continue to cut reserve requirements for banks.
The bank sectors in Lithuania, Estonia and Latvia are dominated by Nordic groups such as SEB, Swedbank , Nordea and DNB NOR as well as a sprinkling of local banks such as Parex in Latvia and Snoras and Sialiu in Lithuania.
‘The central bank decision shows there are liquidity problems in the banking system,’ said Stasys Jakeliunas, a Lithuanian independent financial analyst.
He said this was also reflected in the fact that local overnight rates had risen from 4.6 percent on October 22 to 8 percent on Thursday. The six-month rate had risen 70 basis points from Wednesday to 9.2 percent today.
‘That indicates a sort of pre-crisis situation…The central bank’s decision to unfreeze some assets could help fix liquidity in the short run, but may not be enough in the longer term,’ Jakeliunas said.
A similar money market trend has been seen in Latvia.
There, the overnight rate has eased to about 3 percent from the 8 percent seen in mid-October, but the 6-month rate has spiked to 12.5 percent from 8 percent at the start of October, meaning long-term local financing is hard to come by.
The Latvian government this week said it would make available state guarantees for loans taken out by local banks, saying this was similar to measures taken by other EU nations to support their financial sectors.
The Latvian central bank has also been selling euros and buying lats in recent weeks as the lat currency has been stuck at the weak end of its 1 percent band against the euro.
(Reporting by Nerijus Adomaitis, writing by Patrick Lannin, editing by Patrick Graham)