OREANDA-NEWS. September 18, 2012. International rating agency Moody’s Investors Service has announced that its rating for the Citadele Group remains unchanged. The rating agency acknowledged that the bank has made progress in several important areas, reported the press-centre of Citadele. 

“International rating agencies have been very cautious during the recent years, and all of the assessments are reactions to the instable economic situation in Europe. The agencies make prognoses for the future considering that the situation in Europe will continue deteriorating. Therefore agencies tend to reduce ratings for many countries and enterprises. At the same time Moody’s has granted the same rating for Citadele, which is positive,” says Guntis Belavskis, Chairman of the Board of Citadele Bank.

“Moody’s has rated the Citadele Group at an unchanged B2/Not Prime/E+ which speaks volumes of the stability of the bank and its group of companies. Results of the activity of the bank and its company group for the first six months of 2012 indicate that the profit is increasing, the number of new clients is continuing to grow and other financial indices carry on improving correspondingly with the bank’s restructuring plan regardless of the fact that during its two years of operation Citadele repaid the state all of its term deposits worth 203.7 million Euros and disbursed another 3.5 million lats to the state budget as additional compensation for the received state aid,” explains Guntis Belavskis, “and we plan to close the books for 2012 with larger profit than the one for 2011.”

Moody’s has appraised the rapid growth of Citadele’s profit and awareness indices even though the total profit level is comparatively low. Moody’s assessment states that Citadele has decreased its dependence on state funding and external financial markets thanks to the repayment of state term deposits and the retirement of Eurobonds in late 2011. Likewise, Moody’s approved of the increase of Citadele’s deposit base which reached 9% in the first six months of 2012.

First level capital sufficiency indicator of the Citadele Group has increased from 6.7% in late 2010 to 7.1% in late 2011 and to 7.2% in the first six months of 2012 regardless of the fact that it repaid additional 3.5 million lats to the state this year. The bank’s capital sufficiency indicator was 12.2% (the group’s – 10.2%) as of 30 June 2012, and its liquidity ratio was 61% which corresponds to the average indices in the market.

In its assessment Moody’s had taken into account both the fact that Citadele is a comparatively recently established bank and that the recession of the Latvian economy as well as the changes in real estate prices during the period from 2007 to 2009 lead to the amount of distressed loans in the Latvian banking sector exceeding the average amounts in European banks. Nevertheless the Citadele bank’s amount of loan payments overdue for 90 days and more is considerably lower than the one in the Latvian banking sector, besides it continues decreasing: the amount of Citadele’s distressed loans as of the end of June 2012 was 14% of its loan portfolio, which is lower than in late 2011 and considerably lower than in the banking sector in Latvia in total (which hovers around 17%).

“Since Citadele bank has historically had a better loan portfolio than the total in the market, we do not need accruals for unsafe loans at a level which is necessary for many other banks,” says Guntis Belavskis.

In 2011 and 2012 Citadele has carried out prudent restructuring of a large part of corporate loans and mortgage loans thus achieving higher profitability of its loan portfolio and enabling to balance clients’ cash flows in the long run correspondingly with their loan repayment schedule.
In its future prognosis Moody’s is cautious however and it anticipates that the amount of distressed loans might increase in Latvia due to the unfavourable situation in Europe, export-oriented Latvian economy as well as the high unemployment and debt commitment rates of local inhabitants.

Moody’s acknowledges that the specifics of the methodology for calculating financial indices also includes assessment of the results for 2010; this is the period when Citadele paid high interest rates for the state deposits, subordinated loan and it encountered one-off expenses related to launching its activity. Therefore these indices might be too cautious regarding the future income base from Citadele’s core activity.

Guntis Belavskis reminds that Citadele’s main aim in 2010 was to ensure stability and to reassume the provision of services. Therefore 2011 should be considered as the first full-fledged year of activity from the business development point of view whereas the results for the first six months of 2012 indicate that the chosen strategy has proved to be correct.

Information About Citadele’s Business Results in the 1st half of 2012

The Citadele Bank has concluded the first half of 2012 with profits before set-asides and taxes of LVL 9.6 million (LVL 11.4 million for the concern). These are much better results than during the first half of the previous year. After set-asides and taxes, the bank's profits during the first half of the year amounted to LVL 2.5 million (LVL 4.6 million for the concern).

On June 30, 2012, Citadele had assets of LVL 1.36 billion (LVL 1.60 billion for the concern). The bank’s lending portfolio amounted to LVL 628 million (LVL 720 million for the concern), and the level of capital and reserves was LVL 85 million (LVL 84.5 million). Total deposits at the bank during the first half of 2012 amounted to LVL 1.14 billion (LVL 1.41 billion for the concern).

The bank’s net interest income during the first half of 2012 grew by 25% in comparison to the same period last year, from LVL 9.4 million to LVL 11.8 million (up by 27% from LVL 12 million to LVL 15.2 million for the concern).

75% (minus one share) of Citadele Bank is possessed by SJSC “Privatization Agency” and 25% plus one share is possessed by the European Bank for Reconstruction and Development.