Bank performance in Latvia 2013 - balanced development and challenges posed by the euro
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BANK PERFORMANCE IN LATVIA: 2013 06.02.2014
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According to the Financial and Capital Market Commission's (hereinafter – the FCMC) preliminary data on the performance of Latvian banks, the year 2013 in the banking sector was a year of moderate development, with continuing improvements in the key performance ratios. This was evidenced by a number of trends: the banking sector capitalization and liquidity levels remained high, profitability and credit quality improved, the pace of decrease in loan portfolio declined, as well as a rapid growth in resident deposits a. o. The banking sector still well-capitalized. Several banks had made use of the possibility to strengthen their capital base by including (interim) audited profit of current operational year, whereas reduction in the amount of banking risk-weighted assets was facilitated by a gradual improvement of the loan portfolio quality and still a slow lending development pace, and by the end of December the capital adequacy ratio was 18.9% (regulatory minimum capital requirement – 8%), whereas the tier 1 capital ratio stood at 17.3%1 (compared to 17.6% and 15.3% at the end of 2012). Over the year 2013, six banks increased the share capital in total of 41 million lats. Besides, following the repayment of subordinated loans by banks in 2013 the total amount of tier 2 capital shrank by 34%. Therefore the ratio of tier 1 capital had grown in the banking own capital structure (from 87% at the beginning of year to 91% at the end of December), thus complying with the regulatory capital adequacy requirements aimed at raising the tier 1 capital ratio in the level of own funds (in effect as from 01.01.2014). Bank liquidity Despite the increasing amount of demand deposits and their share in total deposits, with the growing amounts of liquid assets there was still a limited liquidity risk. By the end of December 2013, liquidity ratio was 64.4% (regulatory requirement – 30%), increasing by 4.7 percentage points during the year. Profit and loss In 2013, for the second year in a row (after the three loss making years) the banking sector reported profits of 173 million lats or 246.2 million euros (compared to profit of 122.3 million lats in 2012). Meanwhile, 15 Latvian banks and five foreign bank branches (in total covering almost 95% of banking sector assets) in 2013 posted a profit of 213.1 million lats overall. During 2013, profitability of the banking sector improved and return on equity (ROE) reached 8.65% at the end of December (compared to 5.56% at the end 2012). The structure of banking income and expenditures has not changed significantly. As a result of a decrease in interest rates, interest income continued declining, while due to the shrinking of bank liabilities to the monetary financial institutions (MFI) by almost one-fourth over the year, as well as the low interest rate environment the banks were able to materially reduce their interest expenditures related to the leverage, and as a result net interest income grew by 10.4%.
Transcript of Bank performance in Latvia 2013 - balanced development and challenges posed by the euro
BANK PERFORMANCE IN LATVIA: 2013 06.02.2014
Bank performance in Latvia: 2013 Ludmila Vojevoda, Director of Regulations and Statistics Department, FCMC Board Member
Projections and key events: 2014
Kristaps Zakulis, FCMC Chairman Bank performance in Latvia: trends, environment and outlook Mārtiņš Bičevskis, President of the Association of Commercial Banks of Latvia
AGENDA FOR MEDIA EVENT
THE YEAR OF BALANCED DEVELOPMENT 3
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• On 1 January 2014, 17 banks and 9 branches
of foreign banks operated in Latvia • In 2013, 3 credit institutions suspended
operations: - «GE Money Bank» - «UniCredit Bank» - «Latvijas Hipotēku un zemes banka»
• Number of financial institutions in total declined by 3.6% in EU. On 1 January 2014, there were 8 746 financial institutions in EU as a whole*
NUMBER OF CREDIT INSTITUTIONS
26 credit institutions
* (ECB; 21.01.2014).
5.411.8
54.0
9.53.5
7.1 8.7Latvian State-owned
Other Latvian investors
Sweden
Norway
Ukraine
Russia
Other investors
5 STRUCTURE OF BANK SHAREHOLDERS: SHARE OF STATE CAPITAL DECLINES
Structure of bank shareholders on 1 January 2014 (% of share capital)
• After transforming «Hipotēku banka» into the joint stock Latvijas Attīstības finanšu institūciju «Altum», the share of state-owned capital in the total banking share capital shrank from 17.2% in 2013 to 5.4% at the beginning of 2014.
• Significant presence of foreign capital: 82.8% of total foreign capital : • 6 foreign bank subsidiaries • Market share of 3 EEA bank subsidiaries and 9 EEA bank branches made up 54% of banking
sector assets and 82% of resident banking loan portfolio
LATVIAN FINANCIAL SECTOR AS PART OF THE EURO AREA
• In comparison with the euro area countries, the Latvian financial sector is comparatively small –almost three times less than the average in the euro area relative to GDP
• Return on equity (ROE) and capital adequacy ratio (CAR) are in excess of the average ratio of the euro area
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* Data sources: ECB and Eurostat, FCMC calculations
Ratio, % Latvia Euro area, on average
CAR 18.94 15.0 ROE 8.65 5.2
Assets of MFI, % of GDP*
KEY BANKING INDICATORS IN 2013
60
-773
-361 -179
122 173
-1 800
-1 500
-1 200
-900
-600
-300
0
300
600
900
2008 2009 2010 2011 2012 2013
Net interest income
Net fees and commissions
Net gains/losses from financial instruments
Net expenses for loan loss provisions
Administrative expenses
Net other income/expenses
Profit/ Loss
IMPROVEMENT IN BANK PROFITABILITY CONTINUES 8
Dynamics of return on equity (ROE), %
* Datu avots: ECB banku konsolidētie dati uz 30.06.2013..
Income and expenditure structure, million LVL
• After three years marked by losses, the year 2013 was the second in a row when the banking sector overall operated with profit
• All in all, 15 Latvian banks and 5 foreign bank branches reported profit, overall accounting for almost 95% of banking total assets.
• The banks’ income and expenditure structure has stabilized. The increase in profit was mostly due to a rise in net interest income (by 10.4%), increase in net commission fees (by 13.6%) and gradual improvement of loan portfolio quality (net provisions for loan impairment contracted by 10.9%)
3.7
-41.7
-21.2
-11.2
5.6 8.6
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
2008 2009 2010 2011 2012 2013
LOAN PORTFOLIO DECLINE DECELERATES
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• Though there were signs of recovery in new lending in 2013 and new loans granted to resident non-financial companies and households totalled LVL 1.6 billion, loan portfolio continued to decline
Annual change in the loan portfolio by the category of borrower (percentage points)
Loan portfolio structure by the category of borrower (31.12.2013)
-10.9
-6.5 -8.3
-3.1
-12
-10
-8
-6
-4
-2
0
2 Non-residents
Households, resident
Non-financial companies, resident
Finance and insurance industry, resident
Government, resident
Total(%)
Total excluding write-offs (%)
1% 4%
44%
32%
6%
13% Government, resident
Finance and insurance industry, resident
Non-financial companies, resident
Households, resident (housing)
Households, resident (other)
Non-residents
IMPROVING LOAN QUALITY
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Overdue loans and provisions (% of the respective portfolio)
Resident households Resident non-financial companies
• Ongoing improvement in household loan quality while the credit risk level still higher than in non-financial companies loan portfolio
• The share of loans past due more than 90 days in all major industries under 10% of loan portfolio of respective industry – for the first time since 2009
15.2 14.8 14.2 13.5
12.0
0
200
400
600
800
0
5
10
15
20
25
More than 90 days (righ axis; mln LVL) Up to 30 days 31-90 days More than 90 days Loan loss provisions
9.8 9.1 9.2 8.5 7.0
0
200
400
600
800
0
5
10
15
20
25
STEEP INCREASE IN RESIDENT DEPOSITS BEFORE THE EURO ADOPTION
• In Q4 2013 before the introduction of the euro, there was a rapid growth both in household and corporate deposits, overall during the year resident deposits increased by LVL 848 million, or 13.3%
• Non-resident deposits rose by LVL 384 million in 2013, with growth rate significantly falling down to 6.3% (compared to 16.8% in 2012), it was also due to «Latvijas Hipotēku un zemes bankas» and «UniCredit Bank» leaving the market, as well as the US dollar becoming weaker.
11 Resident deposits grew by 13.3%
Deposits with credit institutions Annual growth in deposits attracted by credit institutions, %
6 378 6 401 6 495 6 551
7 226
6 100 6 403 6 336 6 411 6 484
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
2012 III 2013 VI 2013 IX 2013 XII 2013
Mln
. LV
L
Residents Non-residents
-20.0
-10.0
0.0
10.0
20.0
30.0
I 2012
III V VII IX XI I 2013
III V VII IX XI
ResidentsNon-residentsNon-resident deposits y-o-y (excluding USD/LVL exchange rate effect) , %
BANK CAPITALIZATION AND LIQUIDITY LEVELS REMAIN HIGH
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• Banking sector CAR exceeds the regulatory minimum capital requirement more than twice
• Tier 1 capital ratio reached 17.3% on 31.12.2013
• Despite the growing volume of demand deposits and their share in total deposits, upon an increase in liquid assets, liquidity risk remained limited
Banks’ capital adequacy ratio Liquidity ratio
17.6 18.3 18.6 18.8 18.9
15.316.4 16.7 17.0 17.3
02468
101214161820
2012 III 2013
VI IX XII
%
Capital adequacy (%) Tier I capital ratio (%) Minimum capital adequacy requirement
59.7 58.964.9 64.7 64.4
0
10
20
30
40
50
60
70
2012 III 2013
VI IX XII
%
Liquidity ratio Minimum liquidity requirement
KEY EVENTS AND PROJECTIONS: 2014
BANKING SECTOR TRENDS IN 2014
Forecast for 2014
Changes in loan portfolio Residents
Non-residents
New loans Residents
Non-residents
Changes in deposits Residents
Non-residents
Banks’ profitability
Network of branches
Remote services
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CHALLENGES FACING BANKING SECTOR IN 2014
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• Most powerful market players strengthened in 2013
To retain accessibility of financial services in regions
• Resident deposit volume increased sharply with the euro adoption
To retain the amount of resident deposits with banks
• Quality of household loans improved but not as noticeably as expected
To continue improving quality of loan portfolio, with household financial situation stabilizing and continuing clean-up of banks’ balance sheets
PRIMARY TASKS IN 2014
• Loan accessibility to the corporate and household segments
• Successful sale of the bank «Citadele»
• Ongoing enhancement of public financial literacy
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SUPERVISORS’ HIGH AGENDA IN 2014
WORK ON BUILDING UP BANKING UNION CONTINUES
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Single supervisory mechanism
Single resolution
mechanism
Common deposit
guarantee scheme
• Single Supervisory Mechanism to be launched in full on 4 November 2014
• It is expected that the Single Resolution Mechanism will take effect in January 2015
• Amendments to Directive on Deposit Guarantee Schemes to take effect in January 2015
SINGLE SUPERVISORY MECHANISM
• ECB in close cooperation with FCMC will exercise supervision of 3 largest banks in terms of assets – «Swedbank», «SEB Bank», «ABLV Bank»
• Work on comprehensive assessment of banks under way
• Public consultation launched on the draft of the European Central Bank Single Supervisory Mechanism Framework Regulation governing cooperation between the ECB and national competent authorities (NCAs)
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NEW REQUIREMENTS FOR BANKS IN LINE WITH AMENDMENTS TO CREDIT INSTITUTION LAW
• New capital reserve rules on banks
• Changes in corporate governance (management remuneration and other requirements)
• Disclosure of sanctions imposed on banks by FCMC
• Amendments to the Credit Institution Law: first reading approved by Saeima on 30 January 2014
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THANK YOU
FINANŠU UN KAPITĀLA TIRGUS KOMISIJA Kungu ielā 1, Rīga LV 1050
T.+371 67774800 [email protected] | www.fktk.lv
