New bank loans to residents in Latvia drop 23.6% y-o-y in 2017

The amount of new loans issued to residents by Latvian banks in 2017 has dropped by 23.6 percent compared to 2016, according to the Finance and Capital Market Commission.

“New lending decreased compared to the previous year. New resident loans issued in 2017 totaled EUR 2.3 billion or by 23.6 percent less than in the previous year. However, new loans to resident households grew for the fourth year in a row (+5 percent),” the financial regulator said.

The aggregate bank loan portfolio shrank 4.6 percent in 2017, mostly due to a merger of a Latvian bank and a branch of a foreign bank. The portfolio of loans to resident companies fell 4 percent last year, the portfolio of loans to resident households was down 0.9 percent and non-resident loans declined 14 percent. If the effects of the above merger were excluded, the aggregate bank loan portfolio would have decreased 0.3 percent.

The quality of the loan portfolio continued improving in 2017. The share of loans overdue for more than 90 days was down to 4.1 percent last year.

Profitability of the Latvian banking sector has been falling for the second consecutive year. Aggregate banking profit in 2017 was EUR 236.1 million or down by nearly a half from the EUR 454.4 million profit made in 2016. The profit in 2016 was influenced by one-off revenue for sale of VISA Europe shares but, even if the effects of this transaction were excluded, the 2017 profit would be by 29.5 percent lower than in 2016. Last year profit was reported by ten Latvian banks and four branches of foreign banks, jointly representing 92 percent of the total banking assets.

Aggregate deposits in 2017 declined by EUR 1.1 billion or 5.1 percent due to a decrease in foreign deposits, the financial regulator said. Foreign deposits fell 12 percent last year to EUR 8.1 billion. Resident household deposits soared EUR 479 million, almost fully compensating for the reduction of deposits by the government and financial institutions. As a result, total resident deposits remained nearly unchanged at EUR 12.2 billion.

Despite the reduction of deposits, the liquidity ratio in the Latvian banking sector remained high – at 59.9 percent at the end of 2017 or two times more than the minimum requirement (30 percent).


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