Lithuania, Growing EU Fintech Hub, Considering Opening Commercial State Bank

There are 7 commercial banks operating in Lithuania in 2019. With a recently proposed tax that targets banks and other lenders, talks of ensuring the banking stability have led to musings about creating a state-owned commercial bank. Considering the fact that the Bank of Lithuania has recently made significant strides in fostering Fintech sector that develops advanced banking, regulation and technology solutions – the prospect of a modern state bank is very realistic.

The President of Lithuania, Gitanas Nausėda, said it shouldn’t be a taboo to mull with the idea of launching a state-owned commercial bank in Lithuania. According to the President, who is also a former chief economist at one of the banks in the country, the competitive environment within the banking sector has become worrisome. Currently, two banks control two-thirds of the lending market in Lithuania.

A national digital bank could service public sector administration payments, offer more transparency, effectiveness, national security and serve the national interests.

“If a new state bank is a possibility, then creating it as a completely digital bank should be strongly considered. A digital state bank would be an opportunity for Lithuania to showcase its progressiveness in GovTech and digital banking,” said Anton Zujev, Head of Business Development at Fininbox, a Lithuania-based Banking Software as a Service (SaaS) provider for electronic money and other financial institutions.

Recently, the ruling Farmers & Greens Union party introduced a bill to target assets of banks, other lenders, and major retailers in the country worth over EUR 300 million with a 0.03% asset tax. A similar retail tax in Poland has been challenged in EU courts. Local observers are cautioning against such a risky proposition that could destabilize the banking system.

The Ministry of Finance and the Bank of Lithuania are still unconvinced regarding the state bank idea. According to these institutions, apart from negative experiences with the state banks in the past, a cost analysis should be conducted to evaluate the potential advantages of this type of bank. However, Zujev suggests that these issues are possible to be solved. “Exactly the digital approach combined with the highest standards of efficiency and transparency can be a good way to reduce or even eliminate potential disadvantages. Modern technologies not only make bank performance more reliable but also help in avoiding mistakes from the past.”