Banks, Financial Services, Latvia

The first half of 2014 proved to be successful for Rietumu banka Group, with the group earning a record-high profit, Rietumu banka management report indicates.

The Group closed first half of 2014 with record after tax profit attributable to the bank's shareholders – EUR 35.3 million, which represents an increase of 51.6% compared to 2013. The Group generated for its shareholders an after tax return on equity of 11.5%, and an after tax return on assets of 1.2%.

Many of the Group's business units contributed to the increase in net profit. Operating income reached EUR 71.9 million, which represents an increase of 12% from 2013. The Group's goal is to maintain a cost to income ratio of less than 40%.

The Group is continually striving to diversify its income base and in this regard further expansion of e-commerce and trade finance activities were priorities for the first half of 2014. Net commission income from e-commerce activities increased significantly by 47.6% and trade financing almost doubled as compared to the first half of 2013. Rietumu banka plans to continue strong growth in this area. The Group is in the process of building a processing centre that will support the e-commerce and payment card transactions.

The Group’s consumer leasing company, InCredit, continued to show strong growth in profits of 12.3% in 2014. The Group plans to continue to support the Latvian consumer finance market which is stable but has strong growth potential given the development of the Latvian economy. The Group also started expanding its lending to lending to non-bank lenders that are growing their markets to other countries within the European Union.

The Group's total assets reached EUR 3.082 billion at the end of June. This represents an increase of 5.3% compared to 2013. Rietumu banka follows a conservative approach to asset allocation and about 58% of the Group's assets invested in liquidity management portfolios. About 43% of the liquidity management portfolio is invested in short term money market placement with large mainly European banks.

During the first half of 2014 loans and receivables due to customers decreased by 15.02% from EUR 1.125 billion to EUR 956 billion. This decrease occurred due to the fact that given the geopolitical situation that the Group decided to be more conservative in lending to Russian customers and to decrease the Group's exposure in the category of loan.

The Group follows a conservative lending policy focusing on its strength which is create specific and tailor made products to meet customer's requirements. Loans and receivables due from customers represent about 31% of total assets and since 2010 this ratio has not exceeded 45%. The commercial loan portfolio represents about 87.3% of the total loans of EUR 956 million and the effective average interest rate for the first half of 2014 was 7.05%. Latvia, Russia and Belarus represent the largest commercial lending markets with real estate management, financial services and transport representing the largest industries in the commercial loan portfolio.

During the first half of 2014, the funding sources of the Group remained unchanged in that the Group finances its activity through current accounts and deposits due to customers and shareholders’ equity. Current accounts and deposits due to customers reached EUR 2.687 billion up 4.7% compared to 2013. Current accounts represented EUR 2.356 billion or 87.7% of total current accounts and customer deposits. Term deposits amounted to EUR 331 million as at June 30 and included in this are EUR 117 million of subordinated deposits. Rietumu banka focuses on term deposits for 1 year or more and the average tenor of term deposits is 3.8 years with the average effective interest rate in 2014 of 3%.

Group total shareholders’ equity reached EUR 336 million as of June 30 representing a 18.9% increase from 2013. Group total capital adequacy capital adequacy ratio was 22.32%.

In the first quarter of 2014, the Rietumu banka issued 13.25 million preference shares for Euro 45.6 million. As opposed to subordinated debt, preference shares do not have a maturity date and these preference shares will partly replace subordinated deposits.

In the first half of this year, the Group acquired the following subsidiaries: Euro Textile Group, Green Energy Trio, Pack&Q.