On the summary of Latvian banking sector in first half of 2009
The Financial and Capital Market Commission (FCMC) has summarized performance data of the Latvian banking sector in the first half of 2009.
The Latvian banking system ratios met regulatory requirements at end of 2Q: the average liquidity ratio remained stable, 49.6% (compared with 50.2% at end May). The average capital adequacy ratio (CAR) of the banking sector at end June was sufficient, 12.4% (compared with 12.8% at end May) (regulatory minimum 8%).
While the amount of resident deposits attracted by banking sector grew by 0.1%, or 6.4 million lats, and the amount of non-resident deposits shrank by 2.4%, or 82.6 million lats, total amount of deposits fell by 0.8%, or 76 million lats.
In June, the Latvian banking sector assets decreased by 1.6%, or 359 million lats. Though total banking sector loan portfolio contracted by 0.6%, or 96 million lats, in June, however, in five banks and one branch of a foreign bank (total market share in banking loan portfolio – 18 %), loan balance grew in the reporting month. The rate of decrease in loan balance both for households and private companies was similar, accounting for 0.5%.
Loan loss provisions in the banking sector on average rose by 39%, or 274 million lats in June, totalling 974 million lats. The greater part of provisions, or 85%, was of subsidiaries of EU banks and branches of foreign banks (market share in resident lending – 74%). The amount of provisions in the banking sector by end June made up 6.1% of total banking loan portfolio (compared to 4.4% in May).
By the end of June, the share of loans without payments overdue constituted 76.5% of total loans granted by banks (compared to 77.1% at end May). Though the share of loans with payments overdue above 90 days rose by 11.3% in June (incl. loans issued to residents – by 11.6%, but loans issued to non-residents – by 6.3%) and their share in banking loan portfolio totalled 12% at end June (compared to 10.7% at end May), a monthly growth rate pace of above loans has been decreasing since May (in May – by 17.3%, while since the beginning of the year on average 22%–26% a month).
Overall, the banking sector ended the first half of 2009 with a loss of 346.8 million lats, although 11 banks (constituting 15.5% in total banking sector assets) operated with profit earning a total of 19 million lats. As the Commission has projected early this year, with deterioration of national macroeconomic situation, an increase in lending-related losses is expected in the future, also losses in the 1st half of 2009 were mainly due to above loan loss provisioning. Operational profit of banking sector (profit before provisions and tax) in the first half of 2009 accounted for 198.5 million lats, or by 11.4% down from the respective period in 2008, whereas total operational profit of subsidiaries of EU banks and branches of foreign banks was even by 2% up from end of June 2008.
Since autumn 2008, when it was practically impossible for Latvian banks to refinance their loans due to the financial crisis, eight banks have repaid syndicated loans in the amount of 403 million lats (by mid-July), while in accordance with the syndicated loan agreement schedules two more banks have to repay 172.5 million lats by end 2009. Up to now several banks have managed to repay their syndicated loans before maturity. In years 2010 – 2012, three banks have to repay syndicated loans in the amount of 951 million euro (about 668.7 million lats).
To find out the severity of the impact of extreme circumstances on a bank’s balance sheet, stress tests are used as a risk management instrument. Stress test results are not a forecast for the nearest or further future, however, they have to be evaluated and should be taken into account when making risk management decisions and planning capital adequacy. According to the stress tests carried out based on 1Q data, in case of the pessimistic scenario several banks would have to raise capital in order to meet regulatory requirements. Stress test results are being discussed with the banks, as well as plans and sources for raising capital studied.
This year, already five banks have increased their capital, incl. share capital by 213 million lats and subordinated capital by 144.6 million lats. Two more banks are planning to raise their share capital by 142.8 million lats in total, while one bank plans to attract subordinated capital of 5.5 million lats.
Public Relations Specialist
Financial and Capital Market Commission
Phone: (+371) 6777 4808