In this work I am examining the experience of bank restructuring in Central European countries (Czech Republic, Poland and Hungary), as well as in Lithuania, and considering which methods of restructuring were adopted in Lithuania. The restructuring has been started in these countries, creating market economies in order to rebuild the bank sector.

The main part of the bank restructuring program in Lithuania was aimed at the reorganization of state banks. As it was done in Central European countries, bank recapitalisation was undertaken, together with the revision of the assets. Recapitalisation took place in several steps, although the scale of alteration has been insufficient. The insufficiency of state bank capital has led to losses or non-profitable functioning (compared to the other commercial banks).

In the process of restructuring bank assets, loans belonging to the fifth group of risk have been transferred from the state banks’ balances to the Turto bankas, the owner of the non-performing assets. The latter bank exploited the bankrupted commercial bank “Aurabankas” at its base. As a result of the insignificant state budget’s financial support Turto bankas only received the worst debts portfolios.

Despite the restructuring of both bank capitals and actives, the structure of management and organisation remained unchanged. Bank executives and staff had not sufficiently introduced the practice, common in the West: the “twin” banks programmes have not fulfilled expectations. It resulted in the increase in bad debts portfolios and insufficiently profitable functioning.

The preparation for the state banks’ privatisation took too long. Privatisation was aimed at getting the highest price, rather than the reinforcement of the bank sector, and increasing the competition attracting strong partners from abroad.

Although measures were taken towards saving the failing banks (Lithuanian Joint-stock Innovation Bank and Litimpeks), after the political decisions were made and the programmes of renewing their practice were prepared, it has become evident that these banks were practically bankrupt and deeply insolvent, therefore it was decided to eliminate them.

Evaluating bank restructuring in Lithuania and comparing it with the experience of Central Europe, it could be stated that the former restructuring was carried out chaotically and unsuccessfully. As the economical conditions in Lithuania were similar, similar methods were applied. The good experience of Central Europe, however, has not come into consideration and the decisions were influenced by politics. As a result the state’s share of the market is constantly decreasing and one strong bank – Vilniaus bankas has been established in the Lithuanian financial market. This could have been avoided if state banks were sufficiently capitalised from the start, their management changed and they themselves privatised. This way a sufficiently strong bank sector could thus have been created in Lithuania.

The privatisation of Savings bank of Lithuania will increase competition in the market, but the situation about changing the bank owners is still undecided. The date of privatisation and potential buyers of the Agricultural bank are also uncertain, but the two biddings that took place did not attract much attention. Greater success of privatisation could be expected, should the conditions of competition be altered and more information spread concerning the aims of Lithuania’s Government.