The decision was made by the Board of the Bank of Lithuania, setting the countercyclical capital buffer (CCyB) rate at 1.25% – 0.25 percentage points higher than currently applied.
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Banks, central credit unions, and central credit union groups will have one year to accumulate this additional reserve – the 1.25% CCyB rate will be applied from August 1, 2027. This requirement will allow for the accumulation of about 60 million euros in additional capital. This amounts to less than 6% of the sector’s profit earned in 2025, so no significant impact on loan availability or their cost is expected.
“Capital reserves are accumulated not when problems already begin, but when the economy is growing. Such a preventive decision helps ensure that if the economy experiences significant shocks in the future, banks can continue to finance households and businesses, and the accumulated reserve will help mitigate the impact of potential shocks,” says Marius Skuodis, member of the Board of the Bank of Lithuania.
According to the Bank of Lithuania’s economists, a favorable macroeconomic environment, economic growth close to potential, and high bank profitability create conditions to accumulate additional capital reserves, thereby increasing banks’ resilience to possible economic shocks.
Assessments show that increasing the capital requirement by 0.25 percentage points could raise the average borrowing cost by up to 0.04 percentage points, and annual credit growth could decrease by up to 0.4 percentage points.
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According to the Bank of Lithuania, the overall level of cyclical risk, on which the CCyB rate is based, is moving from moderate to medium. In the household sector, the level of cyclical risk is still assessed as high due to persistent housing price overvaluation and very active borrowing for housing acquisition and consumption, while in the corporate sector it remains moderate. However, if current lending trends continue, imbalances may also begin to form in the corporate sector by early next year, which would increase the cyclical risk level to medium.
Credit growth rates in Lithuania at the beginning of this year were still among the fastest in the European Union (EU), and the level of business and household indebtedness, although still low, was also one of the fastest growing in the EU over the past year. The currently applicable CCyB rate in Lithuania is relatively low compared to other European countries. For example, higher CCyB rates are applied in many Northern and Baltic countries – 1.5% in Estonia, 2% in Sweden, and 2.5% already reached in Norway and Denmark.
The Bank of Lithuania reviews the CCyB rate quarterly. A positive CCyB rate ensures that credit institutions accumulate a capital reserve that can be used during economic downturns or periods of increased cyclical risk.
To account for the higher systemic risk level in the housing sector, an additional 2% sectoral systemic risk buffer is applied to portfolios of housing loans to individuals exceeding 50 million euros. A regular review of this buffer is scheduled for the second half of 2026, during which the need and size of the buffer will be assessed, taking into account observed housing market trends and the increased CCyB rate.
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