Q4 2018: Operating Results of Latvian Banks – Loan Portfolios and Retail Deposits Increase in Eight Banks

Finance Latvia Association’s Q4 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 statistics. Another reason for assets’ decrease is the change of business models for specialized financial service providers.

Total assets of Latvian commercial banks were 22.9 billion as of December 31, 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 -5.5 billion or -19% since the beginning of 2018. Overall, since the beginning of 2016, the value of assets has decreased by EUR -9.1 billion or -28%.

Eight banks had loan portfolio increase

Total portfolio decreased by -0.9 billion EUR or -6% in 2018, although eight banks had loan portfolio increase of 3% to 44% in 2018. The decrease was mainly observed in the non-resident corporates segment.

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. It is true that, just like residents of Latvia, companies are also cautiously optimistic in terms of borrowing funds, and the ability to borrow is generally higher than the willingness to borrow.

Banks’ equity decreased by 10% in 2018

Total capital of the Latvian banking sector reached EUR 2.9 billion as of December 31, 2018. It decreased by EUR -0.3 billion or -10% 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 5.0% in 2018. Eight Latvian banks exceed the average return on equity of the banking sector.

Retail Deposits Increase in Eight Banks

Total deposits of the Latvian banking sector were EUR 16.3 billion as of December 31, 2018. The portfolio has declined by EUR -3.9 billion or -19% in 2018. The decrease was mainly observed in deposits of foreign companies; deposits of private persons increased in eight banks. Total deposits at the Latvian banking sector have been decreasing since 2016 - when the Latvian banking sector started a significant and comprehensive improvement process to ensure the highest standards in countering money laundering and terrorist financing.

Not-audited net profit of Latvian banking sector in 2018 reached 294 million EUR

Total profit of banks in Latvia in 2018 was by EUR 58 million or 25% larger compared to the results of 2017. TOP 5 most profitable Finance Latvia Association member banks in 2018:

1. Swedbank – EUR 111.2 million;
2. SEB banka – EUR 45.9 million;
3. Luminor bank – EUR 44.2 million;
4. Citadele banka – EUR 33.0 million;
5. BlueOrange Bank – EUR 7.4 million.

 

 

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Results of previous periods