Treasury Today Country Profiles in association with Citi

Lithuania

Map/flag of Lithuania

In January 2015, Lithuania became the 19th country to join the Eurozone. This membership followed a decade of rollercoaster development for the Baltic country which included it being one of the fastest growing countries in the world – but also one badly knocked by the financial crisis. Now, with the economy recovered, Lithuania is back on track.

Key facts

Official country name:
Republic of Lithuania
Currency:
euro (EUR)
Language:
Lithuanian
Capital city and financial centre:
Vilnius
Other major cities:
Kaunas, Klaipeda, Siauliai, Panevezys
Time zone:
UTC+2
Population:
3,505,738 (2014 est)
Population growth rate:
-0.29% (2014 est)
GDP per capita (USD equivalent):
$26,700 (2014 est)
GDP real growth rate:
3% (2014 est)
Government type:
parliamentary democracy
Head of state:
President Dalia Grybauskaitė
Political leader:
Prime Minister Algirdas Butkevičius
Top export partners:
Russia, Latvia, Germany, Estonia, Poland, Germany, Belarus, UK and the Netherlands
Top import partners:
Russia, Germany, Poland and Latvia

Economic overview

Sitting at the geographical heart of the European continent, Lithuania was the first state to declare independence from Soviet rule on 11th March 1990. Since then, several milestones have been reached in Lithuania’s journey of economic development, including the country’s accession to the World Trade Organisation and the EU.

Joining these groups assisted Lithuania in achieving impressive GDP growth of around 8% a year in the run up to the global financial crisis. Membership, however, did not prevent the country being hit hard by the turmoil and Lithuania suffered one of the world’s worst economic performances in the first nine months of 2009. With declines of 14.7%, the country came close to default.

Swift government action, nevertheless, saw conditions improve quickly. In the third quarter of 2009, the economy grew by 6.1% making it one of the quickest rebounds in the EU. The fiscal adjustment allowed Lithuania to escape devaluation, expand its export operations and stay competitive.

The recovery was further aided by bolstered trade with Lithuania’s Eastern European neighbours as well as foreign direct investment in the country, which totalled $13.7bn by mid-2010. Today, the country remains heavily reliant on foreign trade and exposure to the fortunes of its trading partners’ economies may pose challenges in the future.

Unemployment is also of concern for the country, the figure remains high today at 12.4%, but economic growth has been steady since 2010. According to the European Commission, GDP growth of approximately 2.8% is expected in 2015.

Joining the Eurozone marks the most recent milestone. Following a referendum in which 60% of the population voted in favour of making the switch, Lithuania joined the Eurozone and adopted the euro as its currency in January 2015. In a celebration ceremony, the Lithuanian Prime Minister Algirdas Butkevicius said that, "the euro will serve as a guarantee for our economic and political security.”

The banking sector

The Bank of Lithuania is the country’s central bank. Its main role is to maintain price stability, but it also supervises the country’s credit institutions, formulates and implements monetary policy, manages the payment and securities settlement systems and also manages the country’s foreign reserves. The central bank oversees seven banks, eight foreign bank branches, two representative offices of foreign banks and 76 credit unions.

The closure of Bankas Snoras (once the country’s fifth largest bank) in late 2011 was due to insolvency. Ukio Bankas, the bank that consequently became the fifth largest, also closed in 2013. As a result of these two major Lithuanian banks collapsing, foreign participation in the banking sector is high with 88% of assets under foreign control. Of the foreign institutions, it is the Nordic banks that are most active in Lithuania and the three largest (Swedbank, DNB and SEB) control around 70% of the assets in the banking sector.

Top five banks in Lithuania and their assets as of 31st December 2013.

Bank Assets (USDm)
SEB 9,389
Swedbank 7,782
DNB 4,766
Siauliu Bankas 2,123
Citadele Bankas 423

Source: Accuity

The banking sector has undergone significant improvement in recent years and now, according to The Bank of Lithuania’s 2014 Financial Stability Report, remains highly resilient to adverse developments and is considered both stable and reliable. Further recognition is cited by credit ratings agency Fitch, which reports the banking sector in Lithuania to be stable. There is, however, room for improvement as Fitch says that lending activity was not strong in the period under review and that, although on the whole the sector is stable, the country is highly sensitive to changes in foreign markets, reliance on export markets, for instance.

Payments and clearing

System Clearing type Transaction types Value dates Cut off times
LITAS-MMS Retail payment system Non-urgent, low value payments in EUR. Large value payments can also be accepted Settlement on same-day basis with end-of day finality. Payment order processing cycles are performed every hour from 09:00 to 17:00 (direct debits by 16:00) 17:00 EET (open from 07:45am)
TARGET2-LIETUVOS BANKAS RTGS High-value, urgent payments in EUR Settlement in real-time with immediate finality Customer payments = 17:00 EET Interbank payments = 18:00 EET
KUBAS Gross settlement Credit unions’ payments Settlement on same day basis 17:00 EET (opens from 08:00)
  • Electronic credit transfers are more popular than paper-transactions, both in terms of value and volume. These are primarily used for both low-value retail payments and high value corporate payments. Domestic and cross border credit transfers in euro to other euro area countries must be SEPA credit transfers as of 1st January 2016.

  • Cheques are rarely used in Lithuania. Some corporate cheques are used but only very occasionally.

  • Direct debits have become increasingly popular over recent years and are most commonly used for low-value recurring payments. SEPA direct debits will also become mandatory at the beginning of 2016.

  • Debit and credit cards are both widely used, but debit cards are more prevalent. VISA is the predominant card issuer although MasterCard and Maestro are also available. Virtual cards are becoming increasingly popular in the country.

Investment options

  • Bank deposits are the most popular short-term investment instrument. Time deposits, with maturities ranging from overnight to 12 months and over, are available.

  • Interest bearing current account and deposit accounts may be opened in Lithuania.

  • Certificates of deposit (CDs) with maturities ranging from one month to 12 months are available from commercial banks.

  • Treasury bills with maturities that vary from one to three, six or 12 months are issued by The Bank of Lithuania (by auction) and the Lithuanian Ministry of Finance (directly).

  • Money market funds have increased in popularity in recent years and are now one of the most widely-used short-term investment instruments.

  • The country’s repo market is fairly liquid.

  • The standard corporation tax rate was reduced from 20% to 15% in 2010 and has stayed at that rate since. Various concessions and incentives are available for small companies and those operating in certain locations or sectors.

  • Dividends are taxable at a rate of 15% unless eligible for the participation exemption rule (under which the dividends are exempt from corporate income tax if the parent company holds at least 10% of shares at least 12 months).

  • A withholding tax is not charged on interest for EEA companies and companies resident in countries that have a tax treaty with Lithuania. A 10% rate applies if not. Royalties are subject to a 10% tax unless reduced under a treaty or eliminated in accordance with the EU interest and royalties directive.

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