Riga, Latvia, 2016-07-29 14:15 CEST (GLOBE NEWSWIRE) -- The Rietumu Bank Group continued its successful development and closed first half of 2016 with net profit after tax of EUR 53 million which represents a 48.3% increase compared to first half of 2015. 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 33.7% and operating income per employee of EUR 98 thousand.
Quality and Individual approach
The Group offers a wide-ranging range of banking products to corporate customers and high net worth individuals. The Group has extensive experience in the EU and CIS countries and 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. Recently the Group has been focusing on larger privately owned businesses to which we can offer a broader range of products.
Given the geographical area that the Group operates in, the current turbulent geopolitical and economic environment has resulted in elevated risks in these regions. Exchange rate volatility and especially the devaluation of the Russian Ruble in 2014 and 2015 resulted in significant challenges to the Group and our customers. Although the Ruble exchange rate has stabilized in the first half of 2016 it still represents risks and challenges to many of our customers. By maintaining close contact to our clients through our extensive network of representative offices, we have continued to successfully cooperate with our customers.
In developing new products our emphasis has always been on employing the latest technologies. The Bank follows a very conservative lending policy while offering innovative and individually tailored products that suit the requirements of each individual customer the best. The Group focused on industries that have not been significantly affected in times of crises and need significant efforts to grow its trade finance and transport finance businesses. By focusing on trade finance business the Bank also offered its customers new opportunities to develop their international expansion. Trade finance as well as developing new lending markets such as Ireland and the United Kingdom are the areas the Bank will focus on in developing its lending business.
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.
Financial review
The Group closed first half of 2016 with after tax profit attributable to the Bank’s shareholders of EUR 52.75 million. The Group generated for its shareholders an annualized after tax return on equity of 23.11% (first half of 2015: 19.98%) and an annualized after tax return on assets of 2.88% (first half of 2015: 2.02%).
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 106.4 m which represents an increase of 38.3% from 2015. The Group’s goal is to maintain a cost to income ratio of less than 40% and in 2016 this ratio reached 33.7%. For the first half of 2016 the Group reached a profit margin of 53% compared to 54% in 2015.
During 2016, Visa Inc. completed the purchase of Visa Europe from all European participating banks. As a result of this sale the Bank realized a profit of EUR 24.74 m from the cash settlement and EUR 2 m from deferred payment. The Bank was also given 8,991 Visa Inc. preference shares with a face value of USD 1. These preference shares are accounted for in available for sale at a price of USD 4.6 m.
As at 30 June 2016 the Group’s total assets were EUR 3,599 m. This represents a decrease of 5.1% compared to 2015 and this slow-down is due to the general economic situation in the region we operate in as well as the Bank purposefully changing the focus on larger customers resulting in the loss of some smaller customers.
The Bank follows a conservative approach to asset allocation with 48% of the Bank’s assets invested in liquidity management portfolios. 31% of the liquidity management portfolio is invested in short term money market placement with large mainly European banks.
During the first half of 2016 loans and receivables due from customers decreased by 7% to EUR 1,025 m. The decrease was due to the Bank downsizing its CIS portfolio. The Bank expects lending to the European Union and trade finance to start compensating for the decrease in the CIS pending portfolio.
The Group follows a conservative lending policy that focuses on creating specific and tailor made products to meet customer’s expectations. However, impairment expenses on loans have increased to EUR 16.42 m in 2016 compared to EUR 10.57 m in 2015 reflecting an increase in non-performing loans. Loans and receivables due from customers represent 28% of total assets and since 2010 this ratio has not exceeded 45%.
The Bank increased its bond portfolio during 2016 to reach a total of EUR 827 million (2015: EUR 674 million). The bond portfolio is invested in a widely diversified range of bonds with an average maturity of 2.5 years.
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 were EUR 2,885 m down 10% compared to 2015. The fall in deposits was due to the general economic environment and a refocusing of the Bank customer base to larger customers. Current accounts represented 88.16% of total deposits balances. Term deposits amounted to EUR 341 m as at 30 June 2016 and included in this are EUR 114 m of subordinated deposits. The average tenor of term deposits is 4.2 years with the average effective interest rate in 2016 of 2.1%.
The Group total shareholders’ equity reached EUR 464 m as of 30 June 2016 representing a 1.6% increase from 2015. The Group total capital adequacy ratio was 22.3% (2015: 19.2 %). 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 first 6 months of 2016 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 2016 successfully.
Eleonora Gailisha Mass Media and Public Relations Phone: +371-67020506 Fax: +371-67020563 E-mail: egailisha@rietumu.lv
