Latvia’s banking sector: Facts & Figures
The banking sector in Latvia is well developed and provides a broad range of financial services to both domestic and international clients. In 2016, there were 23 banks operating in Latvia, including 16 credit institutions registered in Latvia, and seven branches of banks registered elsewhere in the EU.
The Latvian banking sector is dominated by Nordic banking groups which hold 54% of shareholder capital. The structure of bank capital by country is Latvia with 18%, Sweden 43%, Norway 11%, US 5% and UK 4%.
Banks serve 2.23 million customers through 265 bank branches and customer service centres. Client behaviour continues to change, as the number of internet banking users reached 1.4 million, and the number of mobile banking application users reached 269,000 or 13.2% of the number of private clients (the number of mobile banking application users rose by 56% in 2016). The move to reduce usage of cash in daily transactions has continued, as banks have installed over 41,000 payment card terminals and 2.3 million payment cards have been issued to clients, that is, 1.2 cards per inhabitant. The number of purchases made, using payment cards, increased by 13.5%, as clients made 243 million purchases with payment cards worth €4.6 billion during the year. Banks have modernised their ATM networks by installing the latest combined cash deposit/withdrawal models, resulting in a slight drop in the total number of ATMs for the year, providing 1,018 ATMs with withdrawal functions and 327 with cash deposit functions.
Latvian banking sector is profitable, stable and well-capitalised. The year 2016 saw increased new lending and improved overall loan portfolio quality, as well as growth in resident deposit rate that considerably exceeded the growth rate of the Latvian national economy. 2016 was characterised by a particular focus on implementing the upgraded AML/CFT Framework with reviews of the client-base continuing, resulting in an overall reduction in the number of clients served by banks focusing on international clients and a corresponding drop in deposit volumes and assets for these banks and the sector as a whole. The total assets of the banks decreased by 7.6%, amounting to €29.5 billion, which is equivalent to 118% of Latvian GDP. Risk profile reduction in the sector will continue, along with business model changes.
For the second consecutive year, total lending by Latvian banks increased, as the loan portfolio grew by 3.1% or €452 million over the year, reaching €15.1 billion in total. The positive changes have been driven by increased lending to enterprises: new loans granted to domestic enterprises amounted to €1.8 billion, an increase of 34% over the previous year. The sector’s loan quality continues to improve. The percentage of loans that were more than 90 days overdue in the total loan portfolio shrank to an historic low level and was 4.4% by the end of year.
During 2016, the amount of deposits at banks dropped by 8.2%, reaching €21.36 billion. It was influenced by the reduction in the volume of banks’ business focused on foreign customers. At the same time, domestic deposits in Latvian banks showed a stable upward trend (+12.3%) and soared to an historic high level. The banking sector in Latvia is subject to strict supervision with a high level of capitalisation and liquidity. Banks’ capital adequacy and liquidity indicators are significantly above minimum requirements. Latvian banks still maintained high capitalisation levels and the total capital adequacy ratio of the banking sector was 21.24%. In addition, the liquidity of the banking sector was maintained at a high level; the liquidity ratio, end-December 2016, reached 61.88% (minimum requirement – 30%).
The banking sector continued to demonstrate healthy profitability and reported a profit of €454 million in 2016. The Latvian banking industry’s return on assets (ROA) and ROE are above the EU average: 1.49% and 14.25%, respectively. The efficiency ratio (cost-to-income ratio – 44.68%) is among the best in the EU.