From the implementation of a bank windfall tax to a surge in crowdfunding and factoring and banks’ newfound appetite for real estate loans, the legal, financial, and regulatory landscape of Lithuania is constantly evolving, according to Adon Legal Partner Marius Matiukas.
“Bank windfall legislation, adopted in May, introduced a tax on the banks’ increased net revenue from interest, based on the difference between interest (loan) incomes and interest (deposit) expenses,” Matiukas begins. “This has been a hotly debated topic, with banks expressing a reluctance to pay. However, it has led to a positive outcome as well, in terms of increased deposit interest rates and volumes.” Lithuania now ranks fourth in the EU for retail deposit interest rates, he explains, “which has resulted in a surge in deposits. This tax is expected to generate approximately EUR 400 million for the government by 2024.”
And banks have also reconsidered their strategies toward real estate investments, Matiukas notes. “Initially, there was a period of reluctance among banks to provide loans for real estate. However, there has been a shift, with banks not only restructuring existing loans but also showing an appetite for new loans.” Costs of financing did change considerably. Thus, to make financing possible they occasionally agree with longer amortization schedules, he adds. “By extending the principal amortization period, i.e., having smaller monthly repayments with higher repayment at the end of the term, it's possible to issue higher credit with the same debt service coverage ratio. Although financing for real estate saw a slowdown for three or four months, banks are now again providing loans to established market players.”
Lithuania has also seen significant growth in crowdfunding and the issuance of new licenses under the EU Crowdfunding Regulation, Matiukas says. “Even established crowdfunding platforms from outside Lithuania are choosing the country as their business hub due to the established regulatory framework and practice. Over the first six months of this year, funding for projects has reached EUR 118 million, compared to EUR 72 million during the same period of the previous year.” The switch to the EU regime will further expand the market, enabling EU-wide operations, he points out, but the regulator is also increasingly strict: “the Bank of Lithuania is adopting a more conservative approach in issuing new licenses, as well as in supervision of the existing financial sector participants. And it’s also sophisticated enough to make its own decisions and interpretations regardless of what’s happening in other jurisdictions.”
The factoring industry in Lithuania is booming as well, with several new companies operating in the sector. “Some historically only factoring companies have obtained banking licenses as well,” Matiukas points out, “while liberal regulations in Lithuania allow for the provision of factoring services without needing a specific license.” This openness has attracted foreign companies to enter the market, he notes, “seeking opportunities in this thriving sector. We've also witnessed investments and Series A rounds in factoring companies, indicating strong interest in this form of alternative financing.”
According to Matiukas, Lithuania's appeal to foreign players in the financial market can be attributed to several factors. “First, the country has a well-established regulatory framework. The experience and clear positions of the regulatory bodies provide stability and predictability,” he says. “Additionally, Lithuania has a history of attracting and nurturing financial companies, evident in the growth of e-money firms in the past. The country's technology, finance, and legal talent pool and expertise further enhance its attractiveness for new entrants.” Finally, the regulator is also proactive and forward-thinking: “The Bank of Lithuania's strategic focus has recently expanded to improving the capital markets, which hopefully will further solidify the country's position in the global financial landscape,” Matiukas highlights.