More than 80 percent of residents who find themselves in need of a consumer credit would first apply to banks. Only 3 percent of residents would choose quick credit companies and 7 percent – credit unions. These results were found by a company Spinter Research that carried out a representative opinion survey in Lithuania in May.
According to the initiator of the survey Citadele bank, such a choice reflects market trends: market share held by banks is growing, while loan interest curve is going down due to intense competition.
“For the second year in a row we witness rapid growth in demand for consumer credits, especially in the major cities of Lithuania. Our portfolio of consumer credits issued in January–March increased by almost 90 percent compared to the same period last year,” said Andrius Bernotas, Director of the Retail Banking Division.
According to Mr. Bernotas, consumer credit portfolio is growing for several reasons. First, this is due to the overall economic growth and increase in wages and salaries – improving expectations of consumers for personal financial stability contribute to rapid growth in consumer demand.
Second, when choosing a credit provider, more and more borrowers take into account not only the speed of decision-making, but other conditions as well, in particular, the overall cost of the loan. In terms of the latter criterion, banks have competitive advantage over other market participants.
According to the information available to the Bank of Lithuania, the average annual percentage rate of charge applied by banks in 2016 was 16.8 percent. While the percentage rate of charge applied by other consumer credit providers during the same period was as high as 78.9 percent.
“In other words, borrowing from a bank for consumption purposes is almost 5 times cheaper than taking out consumer credit from a quick credit company. Moreover, due to intense competition, we have been observing decrease in interest rate on consumer credits issued by banks,” said Mr. Bernotas.
According to the Bank of Lithuania, the average annual percentage rate of charge applied by banks in April, 2017 was 10.91 percent. This is 2.1 percentage points less than a year ago (13.01 percent).
According to the findings of the survey carried out by Spinter Research in April, having decided to apply for consumer credit, 83 percent of residents would first go to a bank. Mr. Bernotas believes such results to be an indication of the fact that people normally see loans as the usual service of traditional financial institutions, i.e. banks.
According to the information provided by the Bank of Lithuania, in 2016, the country’s banks held consumer credit market share of 62 percent. Consumer credit providers held a share of 36 percent, and peer-to-peer lending platform operators – 2 percent of the market.
At the end of March, 2017, consumer credit portfolio of Citadele bank amounted to EUR 12 million, which is 86 percent higher than a year ago. The average amount of consumer credit issued by the bank was EUR 3,990; the average credit term – 4 years.