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How Consumer Confidence is Affecting the Consumer Lending Market


According to data sourced from the Bank of Lithuania, the consumer lending market is experiencing a rapid recovery in Lithuania.

Experts suggest the trend is closely related with an increasing level of optimism, and higher expectations from consumers after a successful COVID-19 vaccination roll-out. Our analysis explores the basis of this trend and offers projections for the future.

Consumer lending market is displaying a fast recovery in Lithuania

At the end of Q2 2021, the consumer loan portfolio of banks and credit unions was close to EUR 734 million, i.e., -1,0% less than year ago and an increase of 3.7% in H1 2021 . At first glance, these figures may not impress, however, new loans evince the trend is moving upwards.

Around EUR 138 million consumer loans were issued by banks and credit unions in the first half of 2021 – 29% more than the same period a year ago. This beats the record number for the last three years, meaning pre-COVID-19 results have not only been achieved, but surpassed.

The level of confidence is moving in a positive direction

Simultaneously, the consumer confidence ratio reached 4% in July 2021, the highest level since August 2019. According to surveys conducted by the official statistics department of Lithuania, approximately 25% of consumers are of the opinion that this is the best time to make larger purchases. Moreover, about a quarter of consumers surveyed believed their financial position would improve in the short-term, and this share increased by 5 p.p. over the year.

The increased level of confidence can also be confirmed with an analysis of the Lithuanian housing market. Demand for new apartments has reached record highs, and the annual growth rate of the mortgage loan portolio is one of the fastest in Europe, exceeding 9%.

Increased confidence sparked by successful vaccination roll-out and rapidly recovering economy

Despite public protests and other challenges, the number of people vaccinated against COVID-19 is expected to reach 70% of the population by the end of autumn. As the nation moves closer to achieving public immunity, businesses and households are sharing an optimistic mindset.

This level of optimism has also been strengthened by attractive macroeconomic figures. In Q2 2021 annual growth of the country’s GDP reached 6.9%, which was much better than expected. Retail and manufacturing industries climbed by 16.5%, and 12.9% over the year, while export and import jumped by 26.6% and 34.0% respectively. Consumers were also boosted by growing wages, as Q1 202 ended with 9.9% annual growth.

Analysis of the link between consumer lending and the market’s increased confidence

Though a clear link between consumer lending and increased confidence is evident in the analysis of a short-term period, there is no evidence to confirm this will persist in the long-term.

For example, the correlation between new consumer loans and consumer confidence index was close to 0.07 during 01.01.2015 – 01.07.2021 period. Weak correlation was also fixed taking into consideration three months’ average data. However, it increased to 0.6 when only the first half of 2021 was assessed.

Therefore, it appears that the close relationship between the consumer lending market and consumer confidence has a reasonable basis, but only from a short-term perspective.


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