Banks’ profit above EU average

Although the Latvian economy was growing a little slower than anticipated in 2016, the financial market resisted the overall trend and proved its continuing stability. Last year, Latvian commercial banks continued to pursue their development strategies, and main banking indices improved. Growth also continued on the insurance market last year.

Sector in brief

* Latvian Financial and Capital Market Commission has licensed 16 Latvian banks and three foreign banks’ branches.
* In terms of invested capital, Scandinavian banks are the most represented banks on the Latvian market, followed by local banks, EU, Russian and C.I.S. banks.
* Following post-crisis years, the banking sector earned EUR 174 million in profit in 2012. In 2013, banks’ profit in Latvia amounted to EUR 246.2 million, in 2014 to EUR 311 million, in 2015 to EUR 415.9 million, and last year it grew to EUR 454 million.
* The banking sector’s total loan portfolio in 2016 increased 3.1%, including a 1.6% reduction in loans issued to resident households, 7% increase in loans provided to resident companies, while the amount of loans issued to non-residents rose 1.3%, as adjusted for changes in the value of the U.S. dollar.
* Swedbank is the largest bank in Latvia in terms of assets and deposits.
* The total amount of insurance premiums in Latvia last year was EUR 394.6 million, up from EUR 373 million in 2015, EUR 347.6 million in 2014 and EUR 315.8 million in 2013. The total amount of insurance claims reached EUR 248 million last year.

Banks’ profit continues to rise

The Latvian banking sector continued to be profitable in 2016, with profitability even higher than the European Union’s average. This was in large part thanks to the sale of Visa Europe shares, therefore banks’ profit in 2017 is expected to be lower than last year. The overall loan portfolio also resumed growth in 2016 as the number of new loans increased substantially, and resident deposits amounted to an all-time high. In the meantime, the amount of business done by banks working with non-resident clients reduced in 2016, in part due to the weak economic situation in the C.I.S. countries, and in part due to the Financial and Capital Market Commission’s stiffer requirements enforcing measures against money laundering.

 
Banks have to step out of comfort zone

It is clear that, in order to achieve steady revenue in the future also, banks will have to revise their operations and step out of their comfort zone, adapting their business strategies to the circumstances. Changes are needed in banking operations, taking into consideration slower economic development in Latvia, lower interest income, and stronger competition posed by fintech companies. The Financial and Capital Market Commission will continue to supervise banks’ strategies, business models and solvency. 

Losses caused by compulsory liability insurance continue to rise

The number of traffic accidents followed by insurance claims submitted to insurance companies totaled 37,367 last year, which is 8.85% more than in 2015. As a result, insurers lost EUR 100,000 more than in 2015. The average insurance compensation for vehicle damage or loss was EUR 937 in 2016 – 1.6% more than in 2015. Compulsory liability insurance for motor vehicles caused a total loss of EUR 11.8 million last year. This is EUR 854,130 or 2% more than in 2015, while the amount of premiums reduced EUR 880,000 or 1.9%.

Portfolio of payday loans increasing

The total loan portfolio of non-bank lenders amounted to EUR 486.6 million in the first six months of 2016, which is EUR 64.31 million or 15.2% more than in the first half of 2015. Non-bank lenders issued new loans worth EUR 264.5 million in the first six months of 2016 – EUR 40.9 million or 18.3% more than in the first half of 2015. Borrowers took out EUR 110.5 million in payday loans, either online or by phone, which is 42% of the total amount of new payday loans. Lease contracts and other loans secured by borrower’s automobile totaled EUR 71.02 million – 27% of all new loans, while consumer loans totaled EUR 57.9 million – 22%. The total amount of consumer loans increased the most, by 29.48%, the amount of loans borrowed online or by phone rose 17.6%, while the total amount of lease contracts and other loans secured by borrower’s automobile increased 11.8%