Page 53 - CE Outlook Regions 2022

3.2.2 Banks

Despite the adversities stemming from the COVID-19 pandemic and
geopolitical tensions, Baltic banks are in for a good 2022, macro data
suggest.

Mortgage loan portfolio may be thinner in Lithuania especially, as the
country’s Central Bank, headed by a new governor, has adopted
several restrictions to borrowing.

The Baltics’ fintech sector is expected to slow down in 2022, as the
three countries seek quality, not quantity in it.

Fitch says Estonian banks remain well positioned to absorb higher loan
losses caused by the pandemic. Capital ratios remain the highest in the
EU. Non-performing loans were very low at 0.6% of total loans at
end-4Q21, and the declining share of loans under debt moratoria
means risks to asset quality from the coronavirus pandemic are
abating. However, the non-performing loan ratio could gradually
increase due to the renewed restrictions and the expiry of debt
moratoria and some government support measures.

In Latvia, the banking sector has thus far weathered the pandemic
without significant challenges, with capitalisation and liquidity indicators
remaining high.

Non-performing exposures remain low and are not expected to increase
substantially in 2022. Loan quality in hardest-hit sectors has
deteriorated more abruptly but banks have limited overall exposure to
them. House prices have accelerated in recent quarters but affordability
indicators remain stable, reducing overall systemic risks.

The Bank of Latvia is expected to further address the emerging real
estate ‘bubble’, possibly tightening borrowing in 2022.

3.2.3 Industry
Expectations for Baltic industry are for robust growth in 2022. Growth
will be supported by good economic conditions abroad and the
recovery of the world economy after the pandemic, supported by
accommodative fiscal and monetary policies.
It is Lithuania in the Baltics that seems particularly vulnerable in 2022
due to ongoing tensions between Lithuania and Belarus and China,
which are expected in the worst scenario to slash ca 1% from the
country’s GDP.
Risks to the outlook are dominated by the slower than expected fading
of supply chain problems or even their intensification on the back of the
yet unforeseen impacts of the pandemic

53 CE Outlook 2022 www.intellinews.com