Vilnius - Ratings agency Moody's released a report Friday raising concerns about the future outlook for the Lithuanian banking system, a day before representatives of the International Monetary Fund (IMF) are due to travel to the Baltic country for talks.

"The fundamental credit outlook for the Lithuanian financial institutions is negative, in particular reflecting the prospects of a decline in economic growth and its effect on asset quality and profitability," said Moody's in its report on the Lithuanian financial sector.

"After several years of above-trend growth, the economy appears poised to slow significantly in 2009, which is expected to have an adverse impact on banks' profitability and asset quality. We expect an increase in problem loans in the real estate and consumer-lending segments, which are likely to be hardest hit by the economic slowdown," said Kimmo Rama, author of the report.

More positively, Moody's pointed to the fact that Nordic banking groups, including Swedbank, SEB, DnB Nord and Nordea own the majority of the Lithuanian financial sector and should provide some stability.

However, even those institutions are starting to seem less reassuring than they did in the past, the report suggested.

"Potential problems at the parent bank level could put pressure on liquidity positions of the subsidiaries and thus adversely affect the whole Lithuanian banking system," Moody's said.

Also Friday, the Lithuanian central bank announced that its reserves of the local currency, the lita, had decreased during November by 665 million dollars, or more than 10 per cent, leaving 5.47 billion dollars' worth of litas in its vaults.

Representatives of the International Monetary Fund (IMF) are due to visit Lithuania next week for talks with the new government of Andrius Kubilius.

Neighbouring Latvia is already in talks with the IMF about an economic assistance package and Lithuanian officials have not ruled out the possibility of a similar approach to the IMF. (dpa)