FOREIGN CAPITAL AND CREDIT MARKET DEVELOPMENT: THE CASE OF LITHUANIA

Aleksandras Vytautas Rutkauskas,Gitana Dudzevičiūte

doi:10.3846/16111699.2005.9636111

Aleksandras Vytautas Rutkauskas, Gitana Dudzevičiūte

Open Access

https://doi.org/10.3846/16111699.2005.9636111

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Abstract

There have been wide-ranging discussions on whether the investments of foreign banks into the banking sector of the Central and Eastern Europe countries (CEE) lead to greater competition and increase of the loan portfolio of the banks. Several empirical works have shown that a high proportion of foreign capital in the banking sector of CEE countries has generally positive effects on the quality and amount of loan portfolio of the banking sector, but there may also be some adverse effects. Lithuania has an open economy and the credit market is open to international banking competition. The loan portfolio of the banks in Lithuania was growing very rapidly during the last year. A drop in the loan interest rates was significant and banks offered credits under favourable conditions. At the same time, the Lithuanian banking sector is largely foreign‐owned. Foreign investors currently own approx. 87 % of the share capital of banks in Lithuania. The aim of this paper is to investigate the link between the Lithuanian credit market development and the entry of foreign banks

Highlights

The liberalisation of financial markets in Central and Eastern Europe countries (CEE) allows foreign banks to enter these countries
The aim of this paper is to investigate the link between the Lithuanian credit market development and the entry of foreign banks
While the share of foreign capital has risen from 16% to 87% in Lithuania within ten years, the ratio of bank loans to gross domestic product (GDP) has increased from 15% to 28%

Summary

Introduction

The liberalisation of financial markets in Central and Eastern Europe countries (CEE) allows foreign banks to enter these countries. Foreign banks use the potential ability better. They may offer services abroad at lower costs. The banks go abroad to better serve their domestic clients, who have gone abroad to do business with local individuals by offering them high -quality services. While the share of foreign capital has risen from 16% to 87% in Lithuania within ten years, the ratio of bank loans to GDP has increased from 15% to 28%. It would be worth analyzing the impact of foreign capital on the loan portfolio amount of the Lithuanian banking sector

Internationalisation and banking sector development: review of studies

High degree of foreign capital in the banking sector of Lithuania

Findings

Conclusions