According to the latest surveys, only 36,1 percent of the population in Lithuania trust banks, making them one of the least trusted institutions in Lithuania. Globalfindex data shows that as many as 6,47 percent of Lithuanians still do not use bank services, while this figure is only 0,02 percent in Germany, 0,62 percent in Estonia, and even 5,12 percent in Greece.
By 1999, 13 banks had ceased operations in Lithuania, the most famous of which was “Sekundė”. Also, in 2011, “Snoras” finally collapsed, and a little later we had the “Ūkio bankas” scandal. For 12 years now, there has been peace in the Lithuanian banking sector, and the Bank of Lithuania has introduced numerous measures to protect people from losses. However, the exaggerated fear of banks persists, according to a press release from the bank “Bigbank”.
The arrival of capitalism in Lithuania, crises and scammers
There are quite a few reasons why people are afraid of banks, but perhaps the main one is the recently regained independence.
"When Lithuania regained its independence in the 1990s, we had 4 state-owned and 3 private banks. The latter were later established in increasing numbers and this happened chaotically - there was no proper control, so some banks turned into financial pyramids, while others were simply unsafe. With at least some understanding of finance, a mass collapse could have been expected, but at that time few people knew this topic," explains Rolandas Norvilas, head of Bigbank in Lithuania.
The saddest story is the "Sekundė" bank, which became a pyramid scheme. This bank promised exceptionally high interest rates, but in the end the money of new depositors was returned as interest to older customers. Naturally, such a scheme did not last long, people lost as much as 40 million litas, and since then the myth has prevailed that banks only seek to misappropriate money.
The 2008 crisis had a similar effect. At that time, many people had multiple mortgages, so when interest rates rose and income was lost, banks had to liquidate mortgaged assets, and often the owners' personal homes. Naturally, the affected people were angry not only at themselves, but also at the banks, which lent money knowing that the risk they were taking was huge and that people's financial capabilities to repay such loans were often limited.
Well, now banks are often confused with various financial technology companies. We had "Kevin", we still hear a lot about "Foxpay", there have been other scandals that have caught Lithuanian fintech companies. In addition, fraudsters are becoming more and more active, who also use the names of financial institutions, thereby raising distrust.
Lessons learned, but regaining trust will take time
The Lithuanian banking sector has come a long way since independence. After the collapse of Sekundė and the 2008 crisis, which brought down both Snoras and, later, Ūkio bankas, decisive actions were taken to strengthen regulatory systems, strengthen control, and ensure the stability of the financial sector.
The Bank of Lithuania has been working closely with the European Central Bank (ECB) and other European Union institutions to implement advanced regulatory mechanisms. One of the most important changes is stricter capital adequacy and risk management rules for both banks and credit unions. Nowadays, financial institutions in Lithuania must have a large reserve of own funds to ensure their financial stability even during economic downturns, when customers are more likely to become insolvent or decide to withdraw funds from deposits and accounts.
Lithuania has also joined the Bank Recovery and Resolution Directive – a resolution fund has been launched, to which both banks and other financial institutions contribute. These funds can be used in cases of bank insolvency and Lithuania participates in this mechanism with other countries and EU-level institutions.
"These days, our banking system is much more resilient to major shocks, and this could be felt even when people panicked during a pandemic or war." in Ukraine "In the beginning, when thousands of people started withdrawing money, the banking system remained completely stable. In addition, unlike immediately after independence, nowadays savings and deposits in banks are insured up to 100 thousand euros, so although banks are not completely protected from problems, customers, even in the worst-case scenario, would usually not suffer," says R. Norvilas.
During these years, great attention was also paid to increasing transparency. Customers have access to information about bank activities, service conditions and potential risks. For example, banks must clearly provide information about loan repayment terms, interest rate changes and possible financial consequences. This helps customers better understand their obligations and reduces the risk of making rash decisions.
Another significant step is stricter supervision and regular inspections. The Bank of Lithuania has established specialized departments that conduct regular analyses of the activities of commercial banks. If violations or non-compliances are identified, banks are subject to severe fines, sanctions, and may even have their operating licenses revoked.
After the 2008 crisis, the European Banking Union was also established, with the aim of ensuring that all eurozone countries apply the highest banking standards. This reduced the risk that banking problems in any one country could escalate into a European-wide financial crisis. Lithuania is also actively involved in this union.
More could be done
Despite these steps, restoring trust in banks is a difficult task. People's memories of lost money and financial shocks are still alive. Older generations often share these memories with their children and grandchildren, and politicians do not shy away from criticizing banks (although often exaggeratedly).
According to R. Norvilas, who has spent almost two decades in the financial sector, the regulation of banks and credit unions in Lithuania has strengthened the banking system and eliminated many threats, but this is not enough: "The banking sector has learned its lessons and residents should feel safe and not put their money under the pillow, where it can be stolen or, for example, burned. However, residents often trust the security of their homes more than banks, because other financial institutions have been attracted by excessively lenient regulation, which is why new scandals are now emerging. We must understand that the financial sector is very closely interconnected and we cannot let some do whatever they want while other market players are closely monitored."
It is expected that everyone will make more efforts to rebuild trust. Every economic crisis or scandal in the financial sector improves our system and regulation, but we need to improve communication, the quality of bank services themselves, and reduce the shadow economy, which is why some people still do not use banks at all and even receive their salaries in cash.
More active financial education of the population from an early age can also provide benefits - this is what would allow for the biggest breakthrough. Lithuania has had a deposit insurance policy of up to 100 thousand euros for a long time, due to which funds held in banks would be returned even in the event of a bank failure. However, some of the population does not know about this, just as they do not know about how banks would operate in the event of war or even the difference between savings and term deposits.
In the long run, all these measures and the banks' own efforts to achieve transparency should ultimately increase trust in banks, increase the use of their services for one's own benefit, and also improve Lithuania's economic situation.
