The Recent Trends in the Lithuanian Consumer Credit Market
Bank of Lithuania has released the results of the consumer credit market analysis for the first half of 2021. Figures show that borrowing for consumption is recovering rapidly in Lithuania.
Loan portfolios are growing, credit amounts are increasing, contract maturities are lengthening, and the overall portfolio quality is improving. The growing number of lenders has intensified competition, sparking a downward trend in interest rates.
Demand for consumer loans is trending upwards
H1 2021 was highly intensive for consumer lenders in Lithuania. The portfolio of consumer loans granted by banks and credit unions reached EUR 918 million (portfolio’s book value), i.e., 21% more compared with H1 2020. The number of credit agreements also increased (+4%) reaching 490, 744.
The flow of new consumer loans is moving upwards too. Approximately 82,000 consumer loans were granted in H1 2021, i.e., comparatively 35% more than the same period a year ago. The value of new loans granted in the first half of the year jumped from EUR 196 million to EUR 264 million.
This trend is mainly driven by demand factors. When the COVID-19 pandemic was deemed under control, unemployment shifted downwards, exports and corporate income rose sharply, and so did wages. Significant wage growth in the public sector has been observed, boosting the optimism and expectations of households, and prompting bolder consumption.
Alternative financiers buoy the loan portfolio
At the end of H1 2021, the loan portfolio of consumer credit providers (non-banks) amounted to EUR 678 million, i.e., 4% more than a year ago. However, the number of credit agreements fell by 18% (to 298 349). This was caused by stricter credit risk assessments. Customers in strong financial positions chose banks over alternative financing options, triggering a decrease in the number of contracts issued by alternative financiers. However, the loan portfolio continued to show growth as customers entering into agreements with alternative lenders availed of the opportunity to borrow larger amounts.
The health of alternative financing companies is reflected in the consistent flow of new loans. Approximately EUR 222 million of new loans were granted by consumer lending companies in H1 2021, i.e., 12% more when compared with H1 2020, demonstrating optimism among lenders and borrowers.
Intensifying competition among lenders is making consumer credit more accessible
Strong competition between lenders has boosted borrowing conditions for consumers. For example, the average interest rate on new consumer loans offered by lending companies fell by 14% over the year, i.e., to 20.11%. The average annual percentage rate also decreased by 14% (to 35.5%).
The improved financial position of households has also enabled individuals to borrow more. During the year, the average credit amount increased by 38% (to EUR 1 728), while the average maturity of consumer credit increased to 39 months (+3 months).
As lending grows, the quality of loans improves
With lending continuing to display rapid growth, the quality of the loan portfolio might be expected to deteriorate, however the quality and condition of loans has remained consistent. Consumer loans overdue by more than 90 days accounted for just 7.8% of the total consumer loans granted by consumer lending companies: that‘s 27% less than year ago. The share of non-performing loans is shrinking due to tight lending standards, effectively improving financial health of Lithuanian households.