Lithuania credit growth to slow sharply - c.bank

VILNIUS, April 10 (Reuters) - Lithuania's banking sector, dominated by Nordic groups, remains sound despite global financial turmoil, but the rate of credit growth will slow sharply, the central bank said on Thursday.

The International Monetary Fund warned this week that if the credit crisis spread it could lead to a sudden capital reversal for the emerging market countries of Europe, including Lithuania triggering a sharp slowdown.

But Reinoldijus Sarkinas, the head of Lithuania's central bank, said he expected the rate of credit growth to slow to 20 to 30 percent from over 40 percent last year as banks tightened the supply of loans.

"I think that is a healthy development," he told reporters.

Sarkinas said tighter credit would help cool consumption and dampen inflation, which hit 11.3 percent year-on-year in March, the highest since 12.7 percent in January 1997.

Sarkinas said the bank stood by its earlier forecast that annual average inflation would stand at 7.9 percent this year, and expected the inflation rate to start slowing from May.

In recent years, Lithuania has seen a strong growth in lending, mainly carried out by Scandinavian banking groups such as Swedbank (SWEDa.ST: Quote, Profile, Research), SEB (SEBa.ST: Quote, Profile, Research), Nordea (NDA.ST: Quote, Profile, Research), Danske (DANSKE.CO: Quote, Profile, Research), and DnB Nord.

This helped lead to a house price boom, though property prices began to stagnate last year in Lithuania and have fallen in neighbouring Latvia and Estonia.

Sarkinas said developments in the property market posed no threat to the banking sector. Lithuanian banks have also not been affected by the global financial turmoil, he said.