Lithuanian state to cover Ukio depositors

By bne IntelliNews February 20, 2013

bne -

Lithuania is set to stump up LTL500-600m (€145-174m) to help the state deposit guarantee fund make its pay outs to customers of the insolvent Ukio Bankas, the finance minister announced on February 19, despite the fact that officials claim the fund should need to pay out no more than LTL800m.

Speaking on LRT public radio, Rimantas Sadzius described the fund as "rather empty" following the 2011 bankruptcy of Bankas Snoras. The minister did not say whether the plan is likely to increase the government's borrowing target for the year, which is currently set at around LTL7bn.

The previous day, the Bank of Lithuania announced it is to sell the "good" assets of Ukio to the Siauliu Bankas, which is backed by the European Bank for Reconstruction and Development, claiming that a swift transaction is the cheapest way to resolve the situation, with Ukio's liabilities exceeding its assets by approximately LTL1.1bn, according to the state administrator.

However, the figures don't appear to add up. Bank of Lithuania Governor Vitas Vasiliauskas told the press that the deal will limit the liability of the state deposit guarantee fund to LTL800m (rather than a potential cost of LTL2.7bn in case of bankruptcy).

That would suggest the fund could have as little as LTL200m in it. However, the central banker explicitly stated last November: "After Snoras collapsed, the fund was left with LTL1.7bn." Meanwhile, government officials have discussed the fact that Ukio's deposit base of LTL2.5bn is close to 100% of the cash in the fund.

The mysteries of Baltic arithmetic aside, the finance minister went on to say that the fund will seek to recover its money over time through bankruptcy proceedings for the "bad" Ukio assets. "This really is the best of the alternatives we had," he insisted, according to Bloomberg.

His refusal to discuss the effect of supporting the fund yet again (Vilnius was forced to help it make the Snoras payouts also) was at odds with his boss, Prime Minister Algirdas Butkevicius, who has warned already that the government may have to boost borrowing this year to cover the pay outs.

Vilnius' said recently that it hopes to borrow around 75% of the €2.2bn target from the domestic market. The sovereign has raised around €575m thus far in 2013 via a Eurobond and a private placement, but faces a €1bn Eurobond maturing in March. "[T]he Ukio bank failure might just encourage the sovereign to come to market sooner rather than later," suggests Tim Ash at Standard Bank. "Assuming, that is, that the crisis does not begin to weigh on borrowing costs."

Right on cue, the finance ministry held its biggest domestic debt auction in more than seven years on February 18, selling LTL225m in one-year bonds at an average yield of 0.776%.

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