Specialised Banks in Lithuania – Growing Competition and New Opportunities for Consumers

In the Lithuanian media we often hear discussions about the possible entry of large foreign banks into our country. There is also public opinion that the banking sector lacks diversity, and that increased competition could improve borrowing opportunities. The arrival of new international banks in Lithuania to improve the consumer environment is a welcome initiative. However, I believe that many businesses and individuals are still unaware of the alternatives to traditional banks in Lithuania. Currently, there are 13 banks and 5 branches of foreign banks operating in the country. Although this number may seem small, few people can probably name them all. This is because when we think about banks, we often overlook the fact that we also have smaller, specialised banks alongside the Scandinavian giants.

A specialised bank, like a traditional bank, has the right to accept deposits, offer loans, provide money transfers and other typical banking services. The main difference is that specialised banks cannot offer investment services. This distinction means that the capital requirements for setting up a specialised bank are lower, opening opportunities for the creation of smaller, niche financial institutions, such as those that cater exclusively to small businesses. It also paves the way for existing players, such as credit unions, to grow and expand their service offerings. There are currently seven specialised banks operating in Lithuania: "Mano Bankas", "European Merchant Bank", "SME Bank", "GF Bankas", "Saldo Bank", "Fjord Bank" and "Finora Bank". These banks employ more than 500 people in Lithuania.

Licences for these banks are issued by the European Central Bank (ECB) on the recommendation of the Bank of Lithuania. Specialised banks are subject to prudential supervision, which monitors their statistical data, assesses compliance with risk management requirements and conducts regular inspections, just like any other bank.

Compared to other countries in the European Union, Lithuania is one of the few countries where specialised banks operate. This is a unique feature of our financial landscape, yet many people are unaware of it.

Growing Competition – Are We Taking Advantage?

The media and politicians sometimes emphasise the need for more competition in the banking sector, arguing that there aren't enough alternatives for consumers. Specialised banks were created to address this problem. Of course, it is much easier for a credit union to grow into a specialised bank than to attract a large foreign bank that would not only set up a back office, but also offer full banking services to Lithuanian residents.

However, according to data from the Bank of Lithuania, specialised banks accounted for only 1.5% of the market in the first quarter of 2024. Although this share grew by 0.3 percentage points over the year, growth could be faster. This suggests that competition in the sector also depends on the interest of consumers in exploring alternatives.

Specialised banks offer loans ranging from small amounts to several million euro and cater for both companies and individuals. According to unaudited data from the Bank of Lithuania, loans and other advances (including leasing) in the seven specialised banks totalled about EUR 487 million in the first quarter of 2024, compared with about EUR 338 million in the first quarter of 2023. The services provided by specialised banks are likely to be particularly relevant for small businesses. As digital and niche-focused institutions, specialised banks can assess applications from small businesses more quickly and make faster decisions.

Specialised banks also accept term deposits and provide day-to-day banking services. According to the Bank of Lithuania, deposits in specialised banks amounted to over EUR 768 million in the first quarter of 2024, representing 1.5% of total bank deposits in the country.

Driving the Change

The annual growth of specialised banks has increased competition, benefiting consumers by making services more attractive and accessible. It is no secret that competition influences pricing strategies and encourages companies to develop more customer-oriented, innovative services and products.

Almost five years ago, it was predicted that the development of specialised banks would force existing players in the financial market to respond, either by adjusting their pricing, introducing new products and services, launching apps or offering free transactions. Facts and statistics clearly indicate that the potential for specialized banks in our country remains significant.

Going forward, we can expect these banks to continue to expand, with their growth playing a crucial role in shaping innovation and competition in Lithuania's financial sector. This growth could also accelerate the adoption of new technologies, such as artificial intelligence and blockchain, in everyday banking.