The changes in the Latvian financial sector are beneficial for long-term development.

Finance Latvia Association’s Q3 statistics fully reflect the current situation in the Latvian banking sector and the impact of global trends. We see the combined impact of significantly tighter anti-money laundering and combating the financing of terrorism (AML/CFT) standards in Latvia (introduced progressively since 2016) and further tightening of international sanctions policy, a serious EU focus on AML/CFT issues and "know your customer" principles.

Taking into account that the European Central Bank took a decision to withdraw the credit institution’s license of ABLV Bank AS on 11 July 2018, it is not included in Q3 statistics and it has influenced total results of the Latvian banking sector in the 3rd quarter 2018. Other reasons for assets’ decrease are the change of strategy for some of the universal banks, change of business models for specialized financial service providers, including decisions to fully exit the high-risk non-resident client segment, and optimization of capital expenses.

Total loan portfolio EUR 13.5 billion as of September 30, 2018

In the period between the year 2015 and 2018, the ability and willingness of businesses to borrow funds have significantly increased, according to the Finance Latvia Association Lending Index of the business segment. During this period, the lending index for businesses has increased twice as fast than it has increased for individuals which shows that the global economic upswing has a positive impact on the Latvian economy.

The rapid increase of the creditworthiness and willingness of entrepreneurs to borrow has become such due to the overall economic development of the country as well as the increase in corporate profits, which is closely linked to the tax reform that was implemented at the beginning of the year.

Total portfolio decreased by -0.9 billion EUR or -6% in 2018, reaching the lowest total loan portfolio since 2006. The decrease was mainly observed in the non-resident corporates segment. This can clearly be attributed to the change of the business model of some of the banks driven by the decisions to exit the high-risk non-resident client segment.

Total assets of commercial banks have been decreasing since 2016

Total assets of Latvian commercial banks were 21.9 billion as of September 30, 2018. The total assets of the sector have been decreasing since 2016. Main reasons for assets’ decrease are the change of strategy for some of the universal banks, change of business models for specialized financial service providers, optimization of capital expenses, as well as the license withdrawal of ABLV Bank.

The value of assets has declined by EUR -6.5 billion or -23% since the beginning of 2018, reaching the lowest total assets value since 2007. Overall, since the beginning of 2016, the value of assets has decreased by EUR -10.0 billion or -33%.

Banks’ equity decreased by 11% in 2018

Total capital of the Latvian banking sector reached EUR 2.8 billion as of September 30, 2018. It decreased by EUR -0.4 billion or -11% since the beginning of 2018. It was affected by the license withdrawal of ABLV Bank.
The average return on equity in the banking sector of Eurozone was 3.8% in 2017. Eleven Latvian banks exceed the average return on equity of the banking sector.

Deposits declined by EUR 4.8 billion in 9 months of 2018

Total deposits of the Latvian banking sector were EUR 15.5 billion as of September 30, 2018. The portfolio has declined by EUR -4.8 billion or -24% in 2018. The decrease was mainly observed in deposits of foreign companies. Total deposits at the Latvian banking sector have been decreasing since 2016.

Net profit of Latvian banking sector in 9 months of 2018 reached 232 million EUR

Total profit of banks in Latvia in 9 months of 2018 was by EUR 12 million or 6% larger compared to the results of 9 months of 2017.

TOP 5 most profitable Finance Latvia Association member banks in 9 months of 2018:

1. Swedbank – EUR 85.1 million;
2. Luminor bank – EUR 38.8 million;
3. SEB banka – EUR 33.7 million;
4. Citadele banka – EUR 16.4 million;
5. BlueOrange Bank – EUR 9.6 million.