Q2 2018: Operating Results of Latvian Banks
The changes in the Latvian financial sector are beneficial for the long-term development
Latvian economy continues strong growth (5.3% GDP growth in Q2 2018) with the momentum likely to be sustained by the end of the year. At the same time, the total assets of the banking 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, including decisions to fully exit the high-risk non-resident client segment, and optimization of capital expenses.
Finance Latvia Association’s Q2 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.
Stabilization of banks’ equity in the 2nd quarter of 2018
Total capital of the Latvian banking sector reached EUR 3.1 billion as of June 30, 2018, it did not change significantly compared to the 1st quarter of 2018. Total equity has increased in the last 12 months period, the increase was +0.2 billion EUR or +6%. Average return on equity (RoE) in the banking sector of Eurozone was 3.8% in 2017. Based on Q2 results, ten Latvian banks exceed the average RoE for Eurozone banks.
Total loan portfolio with no substantial change in the 2nd quarter
The portfolio of issued loans by Latvian banking sector was EUR 14.2 billion as of June 30, 2018. Total portfolio has not changed substantially in the 2nd quarter – lending to the economy continues at a steady pace. Overall loan portfolio has decreased by -0.8 billion EUR or -6% in the last 12 months period. 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 fully exit the high-risk non-resident client segment.
According to the Association's Lending Index newest data, lending both in the businesses and private customers showed stable growth last year as well. In recent years, as Latvia has enjoyed stable economic growth, the average salary has increased and the unemployment level has decreased. Both are important indicators of an increase in creditworthiness. Although being employed in the informal economy is still the most common obstacle to borrowing, the number of people with a stable and transparent income, and who are ready to take on credit obligations, is always growing. Payback indicators are very good too, and banks take all these factors into consideration when adjusting their loan offers to the current situation.
Deposits declined by -0.5 billion EUR in the 2nd quarter 2018
Total deposits of the Latvian banking sector were EUR 17.5 billion as of June 30, 2018. The portfolio has declined by -0.5 billion EUR or -3% in the 2nd quarter of 2018; the decrease in the 1st quarter was -2.2 billion EUR or -11%. The decrease was mainly observed in foreign deposits. Total deposits at Latvian banking sector have been decreasing since 2016.
Net profit of Latvian banking sector in the 1st half of 2018 reached 133 million EUR
Total profit of banks in Latvia in the 1st half of 2018 was by EUR -32 million or -19% lower compared to the results of the 1st half of 2017.
TOP 5 most profitable member banks of the Finance Latvia Association in the 1st half 2018:
1. Swedbank – EUR 58 million;
2. SEB banka – EUR 24 million;
3. Luminor bank – EUR 22 million;
4. Citadele banka – EUR 13 million;
5. BlueOrange Bank – EUR 7 million.
Total assets of banks have been decreasing since 2016
Total assets of Latvian banks were EUR 24.5 billion as of June 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 and optimization of capital expenses.
The value of assets has declined by EUR -1.2 billion or -5% in the 2nd quarter of 2018. In the 1st half of 2018, the decrease of the assets’ value was EUR -3.9 billion or -12%, reaching the lowest value since 2007. Overall, since the beginning of 2016, the value of assets has decreased by EUR -7.5 billion or -23%.
Detailed information: https://www.financelatvia.eu/en/industry-data/