Update: Latvian banking sector performance: May 2011

30.06.2011
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Riga, 17.06.2011

Press Release

Update: Latvian banking sector performance: May 2011

The Financial and Capital Market Commission releases data covering the Latvian bank performance for May 2011.
At end-May, performance results of all Latvian banks complied with regulatory requirements, namely, the liquidity ratio of banking sector was 62% (compared to 64.3% at end-April) while the banking sector capital adequacy ratio reached 15.3% by end-May, and tier I capital ratio  was 12.1% (compared to 15% and 11.9%, respectively, at end-April) (see Figure 1). Since the beginning of 2011, five banks had increased their capital in total by 20.7 million lats and at end-May paid-up share capital of the banking sector accounted for 1 902.9 million lats.

Figure 1
Banking sector liquidity ratio and capital adequacy ratio dynamics

 
 
The banks recorded profits for the fifth month in a row and by the end of May their profit amounted to 59.5 million lats (contrary to the 207 million lats in losses in the respective period in 2010), where 14 Latvian banks and five branches of foreign banks (constituting 74.7% of total banking sector assets) reported profits, earning in total of 80.5 million lats. The banking sector profit was affected both by performance results (revenues from interest and commission fee exceeded current operating expenses) and loan portfolio quality (an essential decrease in expenses for provisions for loan losses compared to respective period of previous year, recovery of previously recognized loss).

In May, the banking deposit stock rose by 1.8%, or 192.6 million lats, of which resident deposit stock grew by 114.5 million lats, whereas non-resident deposit stock – by 78.1 million lats. By end-May, total deposit stock in the Latvian banking sector amounted to 10.9 billion lats.

In May, 7.3 thousand new loans for total of 102 million lats were granted by the banking sector (of which about 63% were granted by subsidiary banks of the EU banks and branches of foreign banks). Since the beginning of 2011 new loans in total of 469 million lats have been granted in the banking sector (of which 259 million lats were granted to the development of the Latvian enterprises, 51 million lats – to households, while 159 million lats to non-residents) (see Figure 2). Amounts of new loans overall still were less than those repaid by customers and written-off by banks, therefore, total loan portfolio continued shrinking also in May (by 0.1%), however, at a considerably slower pace than over past five months when it had been shrinking by about 1% monthly. Since the beginning of the year the banking sector loan portfolio had shrunk by 4.2% in total, or 607 million lats, and at end-May was 13.7 billion lats.

Figure 2
New loans granted (by months)


 
By end-May, of total loans granted by banks, 73.1% had no payment arrears (compared to 72.5% at end-April). Total overdue loan balance in May decreased by 2.3%, or 88.7 million lats, where the major share was comprised of loans with insignificant overdue payments (up to 30 days), i.e. by 73.3 million lats. Whereas the amount of loans with more than 90 days overdue payments did not change essentially and their share in loan portfolio by the end of May still made up 18.6%. For loans with more than 90 days overdue payments, the major share still constituted loans granted to the construction sector (29%), as well as real estate transactions (26.6%) and dwelling and catering services (26.4%). The amount of loan loss provisions made by banks slightly increased in May (by 0.5% or 8.9 million lats) and at end-May reached 11.6% of the total banking loan portfolio, or 1.6 billion lats (compared to 11.5% at end-April) (see Figure 3).

Figure 3
Overdue loans and provisions (% of loan portfolio)


 
Loan restructuring still continued in May as the creditworthiness of clients did not show significant improvement. In the category of restructured loans, 2.6 thousand loans for the total of 90.7 million lats were included in May, the major part of which were granted to resident households for the purchase of housing, to manufacturing industry, transport and storing, as well as for real estate transactions. Whereas the category of loans in the work-out process grew by 1.9 thousand loans for the total of 33.5 million lats, majority of which were loans to resident households for housing acquisition and enterprises of such branches as dwelling and catering services, transport and storing, as well as real estate transactions. The share of restructured loans in total loan portfolio of the banking sector at end-May made up 19.9%, while the loans in work-out process were 15.1% of total banking loan portfolio (compared to 20.2% and 15.4%, respectively, at end-April) (see Figure 4).

Figure 4
Restructured loans and loans in work-out process

Restructured loans                                                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

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