Banking Sector: Further Signs Of Improvement

BMI View: We maintain a relatively positive outlook towards Latvia's banking sector, where loan activity is showing signs of a nascent recover y. Asset quality continues to improve, and we believe that while the high level of non-resident deposits presents inherent risks, these have been well mitigated.

We continue to see indications that Latvian banks have turned a corner, and maintain a relatively optimistic stance towards the sector. After a weak start to the year, loan activity is showing signs of life, and profitability metrics are improving from the levels experienced in the fourth quarter of last year. The sector also remains among the best capitalised in Emerging Europe. Overall, our forecasts anticipate a modest but material improvement in loan and asset growth over the coming years, and while by no means an outperformer, the robust foundations of the financial system place it on a par with regional strongholds such as the Czech Republic.

Loan growth accelerated in Q213, with aggregate loans expanding by 2.3% year-on-year ( y-o-y ) after averaging -1.3% y-o-y in the Q113 . The expansion was primarily driven by growth in credit to public businesses , although the pace of contraction in lending to private businesses and households also slowed, indicating the possibility of a small expansion in these segments by the fourth quarter. Consumer credit growth will remain subdued over the remainder of 2013 and in 2014 due to ongoing household deleveraging, but the worst is now over for this segment, and a gradual normalisation of credit growth lies ahead.

Signs Of A Nascent Recovery
Latvia - Loan & Asset Growth

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This article is tagged to:
Sector: Country Risk
Geography: Latvia, Latvia, Latvia, Latvia

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