Update: banking sector performance in February 2011

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Riga, 25.03.2011

Press Release

Update: banking sector performance in February 2011

Financial and Capital Market Commission provides recent data on Latvia’s banking sector performance for February 2011.

Performance results of all Latvian banks for February 2011 complied with regulatory requirements. By end-February, liquidity ratio of banks stood at 66.2% (compared to 67.5% at end-January). The banking sector capital adequacy ratio and tier I capital ratio1 have grown and at end-February were 15% and 11.8%, respectively (14.4% and 11.3%, respectively, at end-January). Since the beginning of 2011 two banks had increased their capital by 1.7 million lats in total and end-February paid-up share capital of the banking sector amounted to 1 887.8 million lats (14 Latvian banks increased their capital in total by 324.4 million lats in 2010).

For the second month in a row the banks continued to post profit and at end-February their profit reached 18.9 million lats (contrary to loss in the amount of 59.2 million lats in the respective period of 2010) where 15 Latvian banks and four branches of foreign banks (constituting 81.1% of total banking sector assets) reported profit in total of 28.8 million lats. Banking sector revenues exceeded operating expenses mainly due a fading necessity for new loan loss provisions and a decrease in previous provisioning. The banking sector profit (before provisioning and tax) accounted for 29.8 million lats at end-February.

In February, banking deposit stock rose by 0.4%, or 41.1 million lats of which resident deposit stock increased by 0.7%, or 44.9 million lats. In February, non-resident deposit stock still continued moderate shrinking, i.e. by 0.1%, or 3.8 million lats (as non-resident deposits usually increase significantly at end of year – mainly due to demand deposits and short term deposit stock, which shrink in the first months of a new year). At end-February, total deposit stock in the Latvian banking sector amounted to 10.8 billion lats.

In February 2011 new loans in total of 65.5 million lats were granted in the banking sector (including 23.6 million lats – for the SME development in Latvia, 9.2 million lats – to households, whereas 32.7 million lats – to non-residents), and loan portfolios of five Latvian banks and two foreign bank branches (making up 9.1% of total market share in the loan portfolio of banking sector) had increased, however, the amount of new loans overall still were less than those repaid by customers and written-off by banks. Therefore, total banks’ loan portfolio in February continued shrinking (by 1% or 143.6 million lats) totalling 14 billion lats at end-February.

At end-February of total loans granted by banks, 71.9% had no payment arrears (compared to 72.8% at end-January). Total overdue loan balance grew by 2.3% or almost 90 million lats in February, of which the greater part constituted loans granted to resident households and loans issued for performing real estate transactions. For loans with up to 30 days overdue payments, an increase was due to diminishing solvency of households (the situation on the employment market had not materially improved and household expenses were still increasing) as well as due to the deteriorating financial situation for internal market (demand) oriented enterprises (demand had been declining because of a decrease in the purchase power while business activity costs grew because of increasing taxes). However, the amount of loans with more than 90 days overdue payments still continued declining in February (by 2.7%) and their share in loan portfolio shrank down to 18.7% (in January – 19%). For loans with more than 90 days overdue payments, the major share constituted loans granted for real estate transactions (22.5%) and to resident households for housing acquisition (28.6%). The amount of loan loss provisions did not change significantly and at end-February still was 1.6 billion lats, or 11.5% of total loan portfolio of banks (at end-January – 11.4%).

In February, almost 2.7 thousand new loans (208.8 million lats) were included in the category of restructured loans2. Whereas almost 2.5 thousand new loans (or the total of 93.3 million lats) in February were included in the category of the loans in work-out process3. In February, the loans granted for real estate transactions and to resident households for housing acquisition were included in both the category of restructured loans and the category of loans in work-out process. By end-February, the share of restructured loans in total loan portfolio of the banking sector made up 20.2%, whereas the loans in work-out process constituted 15.7% of total banking loan portfolio (compared to 19.9% and 15.6%, respectively, at end-January).

Anna Dravniece
Head of Office
Financial and Capital Market Commission
Phone: +371 6777 4800, email: anna.dravniece@fktk.lv

Prepared by:
Agnese Joela
Public Relations Specialist
Financial and Capital Market Commission’s Office
Phone: +371 67774808; email: agnese.joela@fktk.lv

[1] Only the highest quality capital elements are included in own funds: paid-up share capital and reserves, as well as retained earnings of previous years.

[2] A loan where a bank has granted concessions to the borrower due to economic or legal reasons that cause financial difficulties to the borrower, which would not be made by the bank in any other case and which can be expressed as extending maturity, postponing loan payments, capitalization of interest, reducing the original interest rate, takeover of the collateral or other assets for partial loan repayment, replacing the original borrower or introducing an additional debtor .

[3] A loan where a borrower is unable/fails to make due payments under the loan agreement and recovery of which has been carried out under special plan including, for instance, applying pledge rights and rights of surety, claiming insolvency, or a special structural unit of bank (third person) or employees assigned for that purpose deal with recovery of loans.


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