Moody's: Overheating concerns for Lithuanian banks

While foreign ownership has played a major role in the development of the Lithuanian banking system, rapid loan growth and economic overheating are raising concerns, Moody's Investors Service said in a new report on the country.

There were nine commercial banks and four foreign bank branches operating in Lithuania as of October 2007, Moody's said, with concentration in the Lithuanian banking system having risen substantially over the past few years.

The agency said it views the increasing presence of foreign banks in the banking system positively since they benefit from advanced risk management practices, easier access to wholesale funding and technology.

In contrast, many of the smaller, standalone players are at a structural disadvantage with potentially negative repercussions in terms of operating efficiencies, the agency added.

Moody's said the primary concern is rapid loan growth putting negative pressure on the banks' liquidity. The Lithuanian economy also is constrained by its small size, significant current account deficit and increasing inflation, the agency said.

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