Dependence of the Financial Structure and Efficiency of the Bank Sector on Economic Growth

Abstract

Rapid growth and development of economy is taking place in Lithuania. Under such conditions the issue of choice between the forms of concentration of financial resources becomes relevant in both the theoretical and the practical respect. Research emphasizes the influence of the forms of concentration of financial resources and the financial structure formed in the country on the economic processes that are taking place. Analyzing financial systems, indicators of the size, activity and efficiency of the bank-based and market-based structures are discussed, which in their turn define the domination of these structures. For research of the Lithuanian financial structure the authors used indicators characterizing the nature of the financial structure, such as: Assets of banks/ GDP; Bank credit to private sector / GDP; Capitalization of the stock market / GDP; Stock turnover / GDP; Stock turnover/Capitalization of stock; (Assets of banks + Capitalization of the stock market) / GDP; (Assets of banks + Capitalization of the stock market) / GDP; Capitalization of stock / Assets of banks; Stock turnover / Bank credit; (Stock turnover / GDP) * (Fixed bank costs / Assets of banks). Influence of the development of the finance sector on the growth of economy and vice versa is the object of the theoretical research of the recent years. This aspect of research is especially relevant to the countries of rapidly emerging economies, as one can presume that the growth of the financial system has a positive impact on the rate of economic growth. Upon characterizing the tendencies of economic growth the most often used indicator is GDP per capita. Developing research in a similar direction and characterizing the tendencies of formation of the structure of the Lithuanian financial system a research of the bank structure and economic growth was carried out. This research does not provide an unambiguous answer as to which of the financial structures – bank-oriented or market-oriented – has a bigger influence on the economies of rapidly emerging countries. However, the dynamics of change of the size and activity of the Lithuanian bank sector corresponds to the tendencies established in research: with the growth of the economy of the country, the size and activity of the bank sector also increases. Growth of the Lithuanian bank sector and the strengthening of its influence on the economy of the country show that possibilities of concentration of financial resources through the bank sector are forming in the country, and this allows us to say that the Lithuanian financial system is oriented towards the bank structure.