Latvia Stability Programme Report
BANKING SECTOR PROFITABILITY REMAINED RESILIENT DURING THE
PANDEMIC
New risks emerging due to the geopolitical situation remain contained
Key Highlights
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In 2021, profitability of banks recovered swiftly as there were smaller expenses on provisions and no significant losses from
trading with financial instruments compared to 2020 and banks' main sources of income gradually grew
Net interest income has increased by 10%, albeit as a result of synthetic growth of one credit institution that acquired a
leasing portfolio from a non-bank. Nevertheless, interest income has remained stable during the pandemic as banks were
able to maintain sufficient interest rate margin (3 pp on average)
Net fee and commission income also increased, mainly from servicing payments and credit cards
Administrative costs increased slightly, however overall cost-to-income ratio (58% at the end of 2021) improved compared
to 2020 and 2019
The war in Ukraine and bilateral sanctions have increased the uncertainty regarding the need for extra provisions and
outlook of income stability. Although financial sector direct exposures to RU, UA and BY are limited, some impact on
borrowers is unavoidable, at least in short term, due to a slowdown in the economic activity and price shock
Risks are mitigated since largest lenders have decent voluntary capital and retained earnings buffers
ROE
CI
Net interest income and Net fee and
commission income (millions EUR)
♦ ROE
- EBA average
◆ CI
140
12%
70%
10%
8%
65%
120
60%
100
6%
55%
80
4%
50%
60
2%
45%
40
%
40%
2017 2018 2019 2020 2021 2022**2017* 2018 2019 2020 2021 2022**
20
0
Source: FCMC (FINREP, consolidated), EBA | Note: Excluding the insolvent PNB Banka AS
and ABLV Bank AS.
2017*
*One-off adjusted data ** Annualized 1Q 2022 data.
18
2018
2019
NII
NFCI
2020
Source: FCMC (FINREP, consolidated), Bank of Latvia's calculations
*One-off adjusted data
2021
2022View entire presentation