The data for 2017 collected by the Financial and Capital Market Commission (FCMC) show a steady reduction in the amount of banking sector assets, mostly driven by shrinking business volumes related to foreign customer service, affecting also return figures. At the same time, an increase in domestic household deposits allowed to maintain the amount of domestic deposits. By the end of the year, the share of domestic customers in the banking sector deposits reached 60%.
Key performance indicators 2017
Profit and loss
The banking sector profitability decreased further for the second year. On the whole, the banking sector posted profit of 236.1 million euro, i.e. almost half of the previous year profit (454.4 million euro). Nevertheless the banking profitability in 2016 was affected by a lump-sum from the sale of VISA Europe shares, even excluding this effect, the banking sector profit in 2017 was 29.5% less than in the previous year. In 2017, ten Latvian banks and four foreign banks’ branches (making up 92% of total banking sector assets) were profitable. Accordingly, return on equity (ROE) also declined to 7.6% (14.3% in 2016).
Compliance with regulatory provisions
In the reporting year, total capital adequacy ratio remained unchanged compared to 2016, while the Common Equity Tier 1 (CET1) ratio grew by 0.8 percent points and at the end of the year the ratios were 21.4% and 19.0%, respectively.
Despite the decreased deposit balance, liquidity ratio remained at a high level, and by the end of 2017 reached 59.9%, i.e. more than twice exceeding the minimum liquidity ratio requirement (30%).
In 2017, the aggregate loan portfolio shrank by 4.6%, it was largely affected by the merger of a Latvian bank with a foreign bank branch. The balance of domestic corporate loan portfolio shrank over the year by 4.0%, household portfolio – by 0.9%, while foreign customer portfolio – by 14%. Excluding the impact of above merger process, the total loan portfolio declined by 0.3%, while corporate loan portfolio even grew by 3.8% over the reporting year.
The new lending figures were below the previous year data. In total, new loans in the amount of 2.3 billion euro were issued to the domestic customers, i.e. by 23.6% less than in the previous year.
Meanwhile the new lending in the domestic household segment had an increasing trend already for the fourth consecutive year (+5.0%).
The quality of loan portfolio continued to improve, with the share of loans overdue for more than 90 days in total loan portfolio shrinking to 4.1%. An improvement in credit quality was observed mainly in the domestic customer segment, where the share of loans overdue for more than 90 days in the loan portfolio had shrunk to 2.9%. The share of domestic loans that were past due more than 90 days decreased to 3.5% of total loans, while for corporate loans it practically remained unchanged (2.5%). Opposite trends were observed in the foreign customer segment where the share of loans overdue for more than 90 days increased by 11.1% over the reporting year.
A reduction in foreign deposits in 2017 resulted in decreasing of total bank deposits by 1.1 billion euro or 5.1%.
The amount of foreign deposits decreased by 12% over the year and stabilized at 8.1 billion euro at the end of the year. Whereas the substantial increase in the domestic household deposits by 479 million euro offset almost in full a decrease in the government and financial institution deposit balance. Therefore the total amount of domestic customer deposits remained stable, i.e. 12.2 billion euro, but due to the declining foreign deposits their share over the year grew from 57.2% to 60.3%.
Summary of balance sheet statements of Latvian banks for 2017 is available on the Financial and Capital Market Commission’s website at www.fktk.lv/en/; Statistics/Credit Institutions/.
FCMC Communications Division
Phone: + 371 67774807; +371 67774808
E-mail: Ieva.Upleja@fktk.lv, Agnese.Licite@fktk.lv