Riga, Latvia, 2017-03-01 16:24 CET (GLOBE NEWSWIRE) -- Corrected ROE and ROE ratios in the Public quarterly report (page 13).
Rietumu Bank Group continued its successful development in 2016 and reached a net profit after tax of EUR 82,3 million. The Group’s revenues are diversified between interest and commission and despite the low interest rate environment the Group continued to operate very efficiently with a cost to income ratio of 32.9% and operating income per employee of EUR 168 thousand. The successful financial results were supported by a major internal reorganization that resulted in three new board members joining our management team. In addition, we made significant changes to the type of customer we target and adjusted the existing customer portfolio in accordance to new customer policy adopted by the Bank.
Customer based 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. These markets still represent risks and challenges to many of our customers and with our approach of maintaining a close contact to our clients we continued to successfully cooperate with our customers.
In 2016 Latvian anti money laundering legislation has been significantly expanded and the complexity of vetting new and existing customers’ profiles and transactions has dramatically increased. Given the time and effort involved with new compliance reality the Bank has decided to refocus our customer policy. Under the new policy the Group has been focusing on larger privately owned businesses to which we can offer a broader range of products. The number of staff in compliance has increased significantly during 2016 while the number of clients has fallen due to new customer policy.
The Group expanded the range of products offered to its customers such as various improvements in payment solutions and technological advances such as card to card payments.
Changes to board and growth areas
Lending is supervised by a new board member and another new board member has been given the responsibility of supervising problem exposures, collections and sale of repossessed collateral. By making these changes we believe that employees involved in lending will focus more on new business development opportunities.
As a result of the uncertain environment in the region the Bank has scaled down its commercial lending in the CIS. The Group focussed on industries that have not been significantly affected in times of crises and made significant efforts to grow its trade finance, leasing and consumer finance businesses. By focussing on these industries the Bank also offered its customers new opportunities to develop their international expansion. The Group will focus on lending development in trade finance as well as developing new lending markets such as Ireland and the United Kingdom.
The Bank also appointed a board member that will be responsible to develop wealth management packages that we offer to our client. We have combined the supervision of customer securities trading, asset management and sales under the umbrella of the new board member. Total assets under management reached EUR 729,710 thousand up from EUR 520,462 thousand in 2015. In addition the treasury function will be the responsibility of this new board member. The Bank also continued to increase its bond portfolio during 2016 to reach a total of EUR 778 million (2015: EUR 674 million). The income from this portfolio in 2016 was EUR 17 million. The bond portfolio is invested in a widely diversified range of bonds with an average maturity of 1.67 years.
Group Companies
The major non-banking companies include leasing and consumer finance companies, repossessed real estate and other repossessed collateral maintenance companies and asset management and financial companies. It is the Bank’s strategy as much as possible to fully integrate its subsidiaries into the Bank’s management and control systems. The activities of Group companies are financed by the Bank via capital investments and loans. In most cases the Bank owns 100% of the shares of its subsidiaries.
The Group fully owns an asset management company called Rietumu Asset Management that provides asset management services to the Bank’s customers. The asset management company provides individual portfolios for customers as well as investment into four Latvian registered funds.
The Group’s Belorussian leasing business focuses on industrial equipment leasing which contributed to the Group’s profit in the amount of EUR 1.5 million for the year ended 31 December 2016. The Bank partly owns and finances a consumer leasing company named InCredit Group SIA which is registered and operates in Latvia. As of 31 December 2016, the net leasing portfolio of InCredit Group SIA was EUR 35 million and it contributed to the net profit after tax of the Group in the amount of EUR 1 million.
RB Investments Group, owns most of the significant real estate that the Bank repossessed as well as other assets that the Bank took over on defaulted loans. Most of the repossessed assets are located in Riga and the Riga region. RB Investments Group is renting out a portion of these assets and plans to sell most of its portfolio of assets in the coming years.
Profitability
The Group’s after tax profit attributable to the equity holders of the Bank for the year 2016 was EUR 80 million (2015: 69 million). The Group generated an after tax return on equity of 17.32% (2015: 17.5%) and an after tax return on assets of 2.3% (2015: 1.9%).
Operating income reached EUR 181 million (2015: EUR 159 million) which represents an increase of 14% from 2015. Net fee and commission income was EUR 41,1 million (2015: EUR 44.1 million). The Group’s cost to income ratio was 33% for the year ended 31 December 2016 (2015: 34%). The Group’s goal is to continue to maintain a cost income ratio of less than 40%. As a result of increasing tax exempt income such as income from listed securities, the effective income tax rate for the 2016 year was 7% (2015: 14%). The cumulative result of the above is that the Group reached a pre-tax profit margin of 49% compared to 51% in 2015.
Assets
As at 31 December 2016 the Group’s total assets were EUR 3,474 million. This represents a decrease of 8.4% compared to 2015. The Group follows a conservative approach to asset allocation and about 42% of the Group’s assets invested in liquidity management portfolios. About 82% of the liquidity management portfolio is invested in short term money market placement with large mainly European banks. The tenure of these placements is up to 7 days. The remaining 18% of the liquidity management portfolios are invested in collateralized instruments with large and stable financial institutions and a short term bond portfolio. The held to maturity portfolio was EUR 320 million as at 31 December 2016 compared to 2015 balance of EUR 221 million. The bond portfolio is primarily invested in corporate investment grade securities.
Loans and receivables due from customers represent about 30% of total assets. Since 2010 this ratio has not exceeded 45% and the Bank does not plan that this ratio exceeds 45% in the nearest future. Loans and receivables to customers have fallen to EUR 1,045 million compared to the balance of 2015 of EUR 1,102 million. This decrease is due decreases in Russian lending exposure. The commercial loan portfolio represents about 89% of the total Bank’s loans of EUR 1,117 million and the effective average interest rate for 2016 was 5.7%. 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 second largest category of lending is margin lending to customers against liquid securities as collateral and this represents about 8% of the total loan portfolio. The effective average interest rate for 2016 for margin loans was 4%.
Funding, Equity and Expand Capital Base
Current accounts and deposits due to customers in amount of EUR 2,743 million decreased by 14% compared to 2015. The fall in deposits occurred due to the economic downturn primarily in Russia as well as a result of the new customer policy adopted by the Bank. Current accounts represented EUR 2,399 million or 87.5% of total current accounts and customer deposits. Current accounts can be withdrawn at any time but they can be considered a relatively stable funding source as outlined in Note 4 d) Liquidity risk. Term deposits amounted to EUR 344 million as at 31 December 2016 including EUR 111 million of subordinated deposits. The average remaining tenor of term deposits is 2.3 years with the average effective interest rate in 2016 of 2%. The average effective interest rate for subordinated deposits in 2016 was 5%.
Group total shareholders’ equity reached EUR 494 million as of 31 December 2016 representing an 8.1% increase from 2015. Group Tier I and total capital adequacy capital adequacy ratios were 16.45% (2015: 13.06%) and 22.36% (2015: 19.2%) respectively.
2017 and Beyond
We believe that 2017 will continue to be very successful. We achieved our results while maintaining a conservative asset allocation which we believe is the basis to continue our stable development. 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 2017 successfully.
Statement on Corporate Governance published on Bank’s website http://www.rietumu.lv/.
Eleonora Gailisha
Mass Media and Public Relations
Phone: +371-67020506
Fax: +371-67020563
E-mail: egailisha@rietumu.lv
