Update: Latvian banking sector performance: November 2011
The Financial and Capital Market Commission releases the Latvian bank performance data for November 2011 .
The banking sector maintained a high level of liquidity ratio* and at end-November it stood at 59.4% (compared to 61% at end-October). With restoring profitability and due to a decrease in the banking risk-weighted assets resulting from the declining lending rates, as well as strengthening of capital base by several banks, the banking sector capital adequacy ratio rose and at end-November reached 17.3% (minimum capital requirement – 8%), whereas tier 1 capital ratio was 14.2% (minimum regulatory requirement – 2%) (see Figure 1). Since the beginning of 2011 twelve banks had increased their capital for the total of 133.3 million lats and the banking sector paid-up share capital amounted to 1 956.2 million lats by end-November.
Banking sector liquidity ratio and capital adequacy ratio dynamics
By the end of November, the banking sector profit accounted for 75.5 million lats (to the contrary of a 326.8 million lats loss in the respective period of previous year), where 15 Latvian banks and five branches of foreign banks (constituting 82.1% of total banking sector assets) reported profits over the accounting period. The banking sector profit was affected both by the performance results (excess of revenues from interest and commission fee over the current operating expenses) and changes in the loan portfolio quality (net expenses for loan loss provisions).
Suspension of JSC Latvijas Krājbanka operations in November had not materially affected the banking sector deposit stock, and though time deposit stock declined there was an increase in demand deposit stock. Considering the structure of JSC Latvijas Krājbanka deposits, there was a decline in resident household deposits mainly (by 7.9% or 225.4 million lats). Meanwhile the resident corporate deposit stock grew (by 3.5% or 68.8 million lats).
The halting of JSC Latvijas Krājbanka operations and following disbursement of the guaranteed compensations resulted in transferring of 87% of total guaranteed compensations paid to clients to other banks. Also the non-resident deposit stock continued growing in November (by 2.4% or 116.9 million lats). Since the beginning of the year the overall deposit stock in the banking sector grew by 57 million lats or 0.5% (where in November the deposit stock shrank by 39.7 million lats or 0.4%) and at end-November totalled 11.2 billion lats (see Figure 2).
Bank deposit stock
In November, total banking loan portfolio grew by 0.1% or 19 million lats, which was mainly due to an increase in non-resident loan balance, boosted by increasing exchange rate of the US dollar to the lats (from 0.496 at end-October to 0.526 end-November) that had an impact on the increase in non-resident loan portfolio, because about 40% of non-resident loans were issued in the US dollars. The resident loan portfolio showed a trend opposite to that of non-residents – over the month the balance of loans granted to both resident non-financial corporations and to households had shrunk by 0.5%. Since the beginning of the year the banking sector loan portfolio had overall reduced by 6.2% or 889 million lats, totalling 13.4 billion lats at end-November.
In November, 7.9 thousand new loans for the total of 190.3 million lats were issued in the banking sector, whereas since the beginning of 2011 - almost 136 thousand new loans for the aggregate amount of almost 1.4 billion lats (where 612 million lats were granted for the development of the Latvian non-financial corporations, 80 million lats – to the Latvian financial institutions, 146 million lats – to resident households, but 537 million lats – to non-residents (see Figure 3).
New loans granted in the banking sector (by months)
There had been a gradual improvement in the quality of banking loan portfolio boosted mainly by more active "cleaning out" of bad loans (writing-off loans) and by more active involvement of banks in crediting the national economy, as well as an improvement in corporate creditworthiness following the economic recovery and growth.
Since the beginning of the year, total overdue loan balance had shrunk by 6.3% or 239 million lats and reached 3.6 billion lats or 26.5% of loan portfolio at end-November, however, total overdue loan amount over the month grew by 0.6%, or 22 million lats. Meanwhile, the share of loans with more than 90 days overdue payments had decreased by 12.7% since the beginning of the year, or by 345 million lats.
Also in November, the balance of loans with more than 90 days overdue payments continued decreasing (by 0.7% or 16.7 million lats) and their share in the loan portfolio shrank to 17.7% by end-November (compared to 17.8% at end-October).
The amount of loan loss provisions made by banks in the course of the month shrank by 9.5 million lats or 0.6% and reached 1.5 billion lats or 11% of the aggregate loan portfolio at the end of November (compared to 11.1% at end-October).
The quality of household loans continued stabilization that was evidenced by the unchanged share of loans with more than 90 days overdue payments for the fifth successive months, making up 19.5% at end-November (compared to 19.6% at end-October).
Though the quality of loans granted to corporate clients had showed explicit signs of improvement as from the beginning of the year, the October data gave rise to concern that the new clients might have faced problems with carrying out credit payments in due time and that was evidenced by an increase in the overdue loans falling in the category of loans past due from 31 – 90 days. However, there was no deterioration in the above situation in November (no loan migration to the categories with longer late payment periods) and the share of loans with more than 90 days overdue payments in the corporate client loan portfolio shrank to 15.9% at end-November (compared to 16.1% at end-October).
Over the month, the amount of restructured loans in the banking loan portfolio rose by 65.8 million lats, or by 2.7%, whereas the amount of loans in work-out process declined by 29.3 million lats, or 1.6%. By the end of November, the share of restructured loans in the banking loan portfolio made up 18.4%, while the share of loans in work-out process stood at 13.3% (compared to 17.9% and 13.6% at end-October).
Since the beginning of the year, about 28 thousand new loans for the aggregate amount of 1 309 million lats were categorized as restructured loans (see Figure 4).
New loans included in the category of restructured loans (by relevant month)
Whereas 21.7 thousand new loans for the total amount of 431 million lats were included in the category of loans in work-out process in 11 months of 2011. Loans granted to non-residents constituted about one-third of the loans that were included in the category of loans in work-out process in November.
In 11 months of 2011, new loans that were granted mainly to resident households as well as real estate transactions, construction sector and to non-residents fell both in the category of restructured loans and the category of loans in work-out process.
Since the beginning of the year the loans in the amount of 244 million lats were written-off by banks (where loans to resident households made up 84 million lats, to resident corporate clients – 147 million lats and to non-residents – 13 million lats).
For additional information:
Public Relations Specialist
Financial and Capital Market Commission's Office
Phone: +371 67774808; email: Agnese.Licite@fktk.lv