OREANDA-NEWS. August 04, 2015. The first six months of 2015 proved to be very successful for the Rietumu Banka Group with profits of EUR 35.89 million and assets growing by 4.4%.  The Group’s revenues are well diversified over interest and commission and despite the low interest rate environment the Group continued to operate very efficiently with a cost to income ratio of 35.09% and operating income per employee of EUR 81 thousand.

Quality and Individual approach

The Group offers a comprehensive range of banking products to corporate customers and high net worth individuals.  The Group has extensive experience in the EU and CIS countries and many of its customers operate in Latvia, the Baltic States, Western Europe, Russia and other CIS countries.  The Group understands the business environments in both Western and Eastern Europe. 

Given the geographical area that the Group operates in, the current turbulent geopolitical and economic environment has resulted in elevated risks in these regions.  However, maintaining a close contact to our clients through our extensive network of representative offices, we have continued to successfully cooperate with our customers.  In the first half of 2015 the Group made significant changes to its customer commission structure.  The strategy behind these changes is that the Group wants to focus on larger European Union based customers to which we can offer a broader range of products. 

The Bank improved the range of banking products available to our customer base with particular emphasis on employing the latest technologies.  The Bank launched an Android application, Windows mobile token and an Apple watch extension.  The Bank also increased its product range by improving online availability of investment services.  The Bank is completing its own processing centre which will improve the range of e-commerce and card products available to clients while further improving the Group’s efficiency.

In April 2015 the Bank hosted the first Rietumu Fintech Challenge in which a number of financial technology start-up companies participated.  Two companies that participated in the challenge have since launched their products and one of these was supported financially by the Bank.  The Bank plans to continue to promote the annual Fintech Challenge.

Financial review

The Group closed first half of 2015 with after tax profit attributable to the Bank’s shareholders of EUR 35.5 m.  The Group generated for its shareholders an annualized after tax return on equity of 19.98% (first half of 2014: 23.02%) and an annualized after tax return on assets of 2.02% (first half of 2014: 2.37%).

Income distribution was well diversified across the business units of the Group with many of the Group’s business units contributed to the increase in net profit.  Operating income reached EUR 77 m which represents an increase of 7% from 2014.  The Group’s goal is to maintain a cost to income ratio of less than 40% and in 2015 this ratio reached 35.09%.  For the first half of 2015 the Group reached a profit margin of 54% compared to 59% in 2014.

Total assets also reached record highs and as at 30 June 2015 the Group’s total assets were EUR 3,630 m.  This represents an increase of 4.4% compared to 2014.  The Bank follows a conservative approach to asset allocation with 54% of the Bank’s assets invested in liquidity management portfolios.  24% of the liquidity management portfolio is invested in short term money market placement with large mainly European banks.

During the first half of 2015 loans and receivables due from customers increased by 5.83% from EUR 1,041 m to EUR 1,102 m.  This increase partly occurred due to the depreciation of the Euro relative to the USD.  The Group follows a conservative lending policy that focuses on creating specific and tailor made products to meet customer’s expectations. 

Loans and receivables due from customers represent 30.36% of total assets and since 2010 this ratio has not exceeded 45%.  The commercial loan portfolio represents 97.5% of the total loans and the effective average interest rate for the first half of 2015 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.

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 3,165 m up 2.7% compared to 2014.  Current accounts represented 86.5% of total deposits balances. Term deposits amounted to EUR 427 m as at 30 June 2015 and included in this are EUR 133 m of subordinated deposits.  The average tenor of term deposits is 3.8 years with the average effective interest rate in 2015 of 3.13%. 

The Group total shareholders’ equity reached EUR 377 m as of 30 June 2015 representing a 10.19% increase from 2014.  The Group total capital adequacy ratio was 19.47% (2014: 22.32%) respectively.  The Bank has always aimed to maintain high capital adequacy ratios and this has been the basis for maintaining financial stability and growth in the Group for more than 20 years. 

The Bank is in the process of further strengthening its capital base and is completing the closed emission of preference shares in the amount of EUR 11m.  Excluding the current emission the Bank has raised 16.4 m of preference shares in 2014 and 2015.  As opposed to subordinated debt, preference shares do not have a maturity date and these preference shares will partly replace subordinated deposits. 

The first 6 months of 2015 presented many new opportunities to the Bank and we believe that the remainder of the year will also prove to be very successful. We owe our success to our customers and business partners and the trust that they have placed in us.  We are looking forward to continue developing the Bank in 2015 successfully.