Update: Latvian bank perfomance 2Q 2011

30.08.2011
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Riga 25.07.2011

Press Release

Update: Latvian banking sector performance: Q 2 2011

The Financial and Capital Market Commission hereby releases Latvia’s quarterly banking profile for the 2nd quarter 2011.

As the banking liquid assets shrank faster than current liabilities in Q2 2011, the liquidity ratio of banking sector fell down to 62.3% by end-June (compared to 65.1% at end-March). The banking sector capital adequacy ratio stood at 15.1% by end-June, but tier 1 capital ratio [1] was 12.0% (compared to15.2% and 12.0%, respectively, at end-March) (see Figure 1). Since the beginning of 2011, six banks had increased their capital by 23.6 million lats in total and paid-up share capital of the banking sector accounted for 1 910.8 million lats by end-June.

Figure 1

Banking sector liquidity ratio and capital adequacy ratio shifts


The banks have been reporting profits already for the sixth month in a row and by the end of June their profit amounted to 68.6 million lats (to the contrary of the 249.5 million lats in losses in the respective period in 2010), where 16 Latvian banks and five branches of foreign banks (constituting 84.6% of total banking sector assets) reported profits, earning 114.8 million lats in total (see Figure 2). The banking sector profit was affected both by the performance results ( revenues from interest and commission fee exceeded current operating expenses ) and loan portfolio quality (an essential decline in expenses for loan loss provisions compared to the respective period of previous year ).

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[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 .


[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 .

Figure 2

Structure of bank income and expenses

Though the banking deposit stock had been on the decline from the beginning of the year and shrank by 1.5% or 169.8 million lats [1] (where resident deposit stock – by 1.2% or 77.8 million lats and non-resident deposit stock – by 2% or 92 million lats), an increase in deposit stock again has been observed since the beginning of May. At end-June total deposit stock in the Latvian banking sector amounted to 10.9 billion lats (see Figure 3).

Figure 3

Bank deposit stocks


Since the beginning of the year, more than 96 thousand new loans were granted in the banking sector for a total of 610 million lats (of which 359 million lats were granted to the development of the Latvian enterprises, 65 million lats – to households, whereas 186 million lats – to non-residents) (see Figure 4). The amount of new loans overall still were less than those repaid by customers and written-off by banks, therefore, the total loan portfolio continued shrinking. Since the beginning of the year the banking loan portfolio had reduced by 5.4% or 768 million lats and at end June made up 13.6 billion lats.

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[1] Usually, non-resident deposits increase significantly at end of year, mainly demand deposits or short term deposit stock , which shrink in the first months of a new year .

Figure 4

New loans granted (by months)

Though total loan balance in arrears since the beginning of the year had shrunk by 3.3% or 125.3 million lats and at end-June made up 3 681 million lats, or 27.1% of loan portfolio, the amount of loans past due only for up to 30 days grew by 17.8% over this period, or by 129.2 million lats. Instability of the category of loans in relatively short-term arrears still continued being sensitive both to any changes in household creditworthiness (because of rather slow improvement in the labour market situation, no reduction in household expenses) and to changes in the financial situation of domestic demand-oriented enterprises . Meanwhile the amount of loans with more than 90 days overdue payments still continued declining in the reporting quarter (by 3.9%, or 102.3 million lats) and their share in loan portfolio was 18.4% at end-June (compared to 18.7% at end-March). For loans with more than 90 days overdue payments, the major share by the end of June constituted loans granted for real estate transactions, dwelling and catering services, as well as real estate transactions, i.e. 27.3%, 26.2% and 25.4%, respectively. The amount of l oan loss provisions made by banks continued moderate shrinking and at end-June were 11.3% of total banking loan portfolio (compared to 11.5% by end-March) (see Figure 5).

Figure 5

Overdue loans and provisions (% of loan portfolio)

Loan restructuring still continued as creditworthiness of clients did not show significant improvement. In the category of restructured loans 15.7 thousand loans for a total of 836.8 million lats were included as from the beginning of the year. Whereas 12.2 thousand loans for 270.5 million lats had been included in the category of loans in work-out process over the same period of time. During this period, the majority of new loans granted for real estate transactions, construction 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-June, the share of restructured loans in the total loan portfolio of the banking sector made up 20.4%, whereas the loans in work-out process were 14.7% of total banking loan portfolio (compared to 20.1% and 15.5% at end-March) (see Figure 6).

Figure 6

Restructured loans and loans in work-out process

Anna Dravniece

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

For additional information:
Agnese Joela
Public Relations Specialist
Financial and Capital Market Commission’s Office
Phone: +371 67774808; email: Agnese.Joela@fktk.lv

Contacts


Address:
Kungu iela 1, Riga, LV-1050
Phone:
6 7774800
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