Update: Latvian banking sector performance July 2011

05.09.2011
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Riga, 24.08.2011

Press Release

Update: Latvian banking sector performance July 2011

The Financial and Capital Market Commission releases data covering the Latvian bank performance for July 2011. As the banking sector liquid assets diminished faster than current liabilities in July, the liquidity ratio* continued decreasing and was 59.7% at end-July. The capital adequacy ratio* at end of July was 15.9%, whereas tier 1 capital ratio* was 12.6% (see Figure 1). Since the beginning of 2011, six banks had increased their capital for the total of 23.6 million lats, in July a new bank launched operations, i.e. Rigensis Bank AS, and as a result the banking sector paid-up share capital accounted for 1 921.3 million lats at end July.

Figure 1
Banking sector liquidity ratio and capital adequacy ratio dynamics


 
The banks have been reporting profits already for the seventh month in a row and by the end of July their profit amounted to 90.4 million lats (to the contrary of the 312.8 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 139.4 million lats in total (to the contrary to seven months in 2010, where 8 Latvia’ s banks and two branches of foreign banks earned 7 million lats in total). 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 loan portfolio quality (an essential decline in expenses for loan loss provisions compared to the respective period of previous year).

In July, the banking deposit stock overall fell by 0.7% or almost 80 million lats, where resident deposit stock shrank by 1.7% or 106.4 million lats, whereas non-resident deposit stock over the same period grew by 0.6% or 26.5 million lats (decrease in resident deposits was observed mainly for demand and short-term deposits (up to 6 months)). At end of July, deposit stock in the Latvian banking sector totalled 10.9 billion lats (see Figure 2).

Figure 2
Bank deposit stock


 
Since the beginning of 2011 more than 104 thousand new loans were granted in the banking sector for a total of 765 million lats (of which 455 million lats were granted for the development of Latvian enterprises, 80 million lats for resident households whereas 230 million lats for non-residents) (see Figure 3). Though the amount of new loans overall still was less than those repaid by customers and written-off by banks, and the total loan portfolio continued shrinking, however, in July loan balance granted to resident enterprises had grown (by 0.6% or 34 million lats) for the first time since August of 2010. Whereas the loans granted to resident households in July shrank by 0.7% amounting to 5.4 billion lats by end-July. A major share or 4.4 billion lats of household loans were granted for housing acquisition, of which 3.3 billion lats were the single loans for housing purchase.

Since the beginning of the year the banking loan portfolio had reduced by 5.7% in total or 819 million lats and at end-July amounted to 13.5 billion lats.

Figure 3
New loans granted in the banking sector (by relevant month)


 

By end-July of total loans granted by banks, 72.9% had no payment arrears (compared to 72.9% at end-June). In July, total loan balance in arrears had been diminishing already for the third month in a row, i.e. by 0.5% or 20 million lats in July, by 0.3% or 10 million lats in June and by 2.3% or 90 million lats in May. In July, a decrease was mainly in the amount of loans past due only for up to 30 days, i.e. by 15 million lats. Whereas the amount of loans with more than 90 days overdue payments had not changed essentially since end-June and their share in the loan portfolio was 18.4% by end-July as well. For loans with more than 90 days overdue payments, the major share constituted the loans granted to the construction sector, dwelling and catering services as well as real estate transactions, i.e. 27.1%, 26.8% and 25.2%, respectively. The amount of loan loss provisions made by banks continued moderate shrinking and at end-July made up 11.2% of total banking loan portfolio (compared to 11.3% at end-June) (see Figure 4).

Figure 4
Overdue loans and provisions (% of loan portfolio)


 

As customer creditworthiness improved at a very slow pace the banks still continued loan restructuring. Almost 2.8 thousand new loans for a total of 47 million lats fell into the category of restructured loans; at the same time 1.4 thousand new loans for a total of 15 million lats – in the category of loans in work-out process (see Figure 5). In July, the majority of new loans granted to resident households for housing acquisition were included both in the category of restructured loans and the category of loans in work-out process. By end-July, the amount of restructured loans made up 2.7 billion lats or 20.1% of the total loan portfolio of the banking sector (compared to 20.4% at end-June). The amount of loans in work-out process at end-July stood at 1.96 billion lats, or 14.5% of total banking loan portfolio (compared to 14.7% at end-June), whereas the loans in the amount of 158 million lats have been written off in losses by the banking sector since the beginning of the year.

Figure 5
New loans falling under categories of restructured loans and loans in work-out process (by relevant month)

Anna Dravniece
Head of Office
Financial and Capital Market Commission

For additional information:
Ieva Upleja
Chief Public Relations Specialist
Financial and Capital Market Commission’s Office
Phone: (+371) 6777 4807; e-mail: ieva.upleja@fktk.lv

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Kungu iela 1, Riga, LV-1050
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