Financial sector returns to moderate development
THE SECTOR IN BRIEF:
• Latvian Financial and Capital Market Commission has licensed 20 commercial banks and registered nine foreign banks’ branches;
• Reputation of Latvian banks has increased to the average level in Europe (40 points);
• In the insurance sector, non-life insurance accounted for 82% and life insurance for 18% of earnings in 2011.
• According to the Financial and Capital Market Commission’s data, after three years of losses, the banking sector posted a total of LVL 122,3 million in profit in 2012. Fifteen Latvian banks and four foreign banks’ branches (with a total share of the banking sector’s assets at 93,9%) operated with a profit in 2012.
• Banks’ liquidity and capital adequacy ratios remained high at the end of December 2012: 59,8% (minimum requirement – 30%) and 17,6% (minimum requirement – 8%) respectively. Banks’ deposit balance also increased LVL 1,4 billion or 12,7% last year, amounting to LVL 12,7 billion at the end of 2012.
Trouble with Parex and Krājbanka
• Nevertheless, the global economic crisis had an impact on the banking business in Latvia: in 2008, huge amounts of money were withdrawn from Parex banka, then second largest bank in Latvia, within a short period of time, causing the bank serious liquidity problems. With the involvement of the government, a new bank, Citadele, was established on the basis of the Parex good assets on August 1, 2010.
• The bank was developing steadily in 2011, achieving LVL 3,5 million in profit. After retiring eurobonds and repaying deposits by the State of Latvia, Citadele became a classical deposit-based bank. On the other hand, Parex banka decided at the end of 2011 to not renew its credit institution’s licence and became a manager of problem assets; it was renamed Reverta in March 2012.
• In November 2011, the Financial and Capital Market Commission suspended operations of Latvijas Krājbanka, then one of the ten largest banks in Latvia, after it established that approximately LVL 100 million was missing from the bank. In December, a court ruled the bank insolvent and appointed audit company KPMG Baltica as the bank’s insolvency administrator. After the administrator concluded that reviving the bank would not be possible, Riga Regional Court decided in May 2012 to begin bankruptcy procedures at the bank.
Banks resume lending
• In 2011, banks issued a total of LVL 1,5 billion in 146 000 new loans. LVL 664 million was provided for the development of Latvia’s non-financial enterprises, LVL 87 million to financial enterprises, LVL 168,5 million to resident households and LVL 621 million to non-residents.
• After the crisis ended, the amount of non-resident deposits began to gradually increase again from 2009; by the end of 2012, non-resident deposits increased to LVL 5,9 billion or EUR 8,3 billion, constituting 49,5% of banks’ total deposit portfolio.
• Banks are resolved not to repeat past mistakes and be more active in lending to the real economy – production and trade, giving preference to exporting enterprises. In order to compensate for losses in the past years, banks are ready to support any good project likely to generate profit in the long term. Competition among the five leading banks in Latvia is therefore expected to grow stronger.
• The greatest challenge of 2013 is to ensure funding necessary for the economic development of Latvia.
• Introduction of the euro is a major challenge.
Insurance sector’s growth and development continues
• In 2012, there were two life insurance and seven non-life insurance companies operating in Latvia, as well as ten branches of EU companies (five life and five non-life insurance companies’ branches).
• Life insurance accounted for 82% of incomes in the insurance sector in 2012, non-life insurance for 18 percent.
• Insurance premiums increased 6,9% in 2012 to LVL 156,8 million, whereas insurance claims grew 2,5% to LVL 80,5 million.
• The insurance market is expected to increase at least 5% in 2013.
Non-banking financial companies
• According to the Economy Ministry’s data, there are 216 non-banking financial companies and 140 pawn shops in Latvia last year.
• 12 companies are offering mortgages, whereas annual turnover of 90% of these lenders does not exceed LVL 150 000.
• In 2011, LVL 1,5 million was issued in quick loans in Latvia, which is almost five times more than in 2010 when the total amount of these loans was LVL 300 000 to LVL 350 000. In 2011, there were 17 such lenders in Latvia in total, and their net turnover in 2011 was approx-imately LVL 21 million.
Association of Commercial Banks of Latvia
Financial and Capital Market Commission
Central Statistical Bureau of Latvia
Latvian Insurers Association
Association of Latvian Leasing Companies
Bank of Latvia