2018 was full of significant changes for the Bank and the industry, in general. There is no doubt that recent events have an adverse effect not just on one Latvia bank or financial sector, but on the whole economy. We changed our business direction sharply, in line with the changes in the banking sector, shifting focus from serving international clients to local clients. Given the market situation, we shall continue following this direction in the future.
In 2018 we developed new Business Strategy for a five-year period which we will review and scrutinise annually, adjusting it for the most recent market developments. The overarching strategic goal of the Bank is return to profitability in the near future, while balancing sustainable growth with unfaltering compliance with capital adequacy, AML and other regulatory requirements.
During the past few years, we have been preparing our Bank for new challenges and changes in the financial markets, so the Bank’s further course will be influenced not only by changing market conditions.
Following the new, stricter regulatory requirements in the field of anti-money laundering and terrorism financing, the Bank has repeatedly reviewed its client base and have reduced it significantly in order to further mitigate the risks associated with international banking business. As it was already mentioned in our previous reports, following our decision to heavily de-risk our international client’s portfolio, we have reduced the high-risk part of that portfolio, namely non-residents legal entities by 91% over the course of the past three years. Consequently, in the beginning of 2018 the Bank has discontinued cooperation with clients that were a subject to excessive compliance and reputational risks. Simultaneous non-active client cleanout has been performed too during that time. As a result, the Bank now has smaller but high quality, low-risk client base, and has become strongly focused on servicing the Latvian residents segment of the market.
The decision to de-risk this part of the portfolio has actually strengthened our client’s base quality, and our Bank’s position in general, bringing it in line with our conservative AML strategy. This has allowed us to fully focus on the existing and healthy clients base, providing them with first class service and also to start looking to expand our credit portfolio by attracting good quality clients in order to support a slow and controlled growth, in line with our strategy.
Maintaining a strong Balance Sheet
As at 31 December 2018 the Bank’s total assets were EUR 200.9 million. The Bank’s underlying operating income reached EUR 7 463 thousand in 2018. The Bank remains very liquid with Cash and Balances with the Bank of Latvia representing 26% of total assets, compared to 36% at the same time in 2017. The Bank continues to efficiently manage its administrative expenses despite significant investments in the new core banking system, and further investments in the AML people and systems that would allow us to grow organically while limiting our exposure to riskier parts of the market.
The Bank’s Capital Adequacy Ratio remains very high at 28.15%, and is among the highest in the Latvian banking system. In line with CAR, the Bank purposefully maintains a very high Liquidity coverage ratio which has reached a healthy 642.28% at the end of 2018, much higher than the minimum required level of liquidity coverage ratio (minimum required liquidity coverage ratio is 90%).
Compared to the previous reporting period, there was a growth across a number of important fields of business in 2018.
Furthermore, at the beginning 2018 the Board of the Bank and its Supervisory Board have appointed Sandris Straume to a position of the Chief Risk Officer/ Chief Compliance Officer. About the same time the Bank has joined the British Chamber of Commerce in Latvia.
In May 2018 the EU General Data Protection Regulation (GDPR) was enforced. With development of technologies, data acquisition and processing become even more important, as it is possible to offer services, which are more appropriate to the clients, when data are processed with the client’s acceptance. In their turn, due to new regulation in the sphere of personal data protection, the clients have more extensive opportunities to control, which personal data are processed, stored or deleted.
As from June 2018, the Bank launched a brand-new website, which was developed using secure and modern website solutions and technologies, as well as through implementation of the newest trends in ergonomics, content architecture, user and usability experience, and, of course, design, which all together provides user-friendly display of the site on smartphones and tablets. Comparing the analytics data of the 2018 and 2017, the number of visits to the Banks website has increased on 40.9% using smartphones. The new user’s audience increased by 25.96%.
In summer 2018, following the established tradition, again, the Bank helped those that need it the most. The Bank has organized a charitable event in which the staff, clients, partners of the Bank and the charity fund eņģeļiem.lv provided residents from the children’s homes with basic necessities and various presents.
The Bank committed to meeting our clients evolving needs and we keep offering new products to our clients. As from October 2018, the Bank has started offering a consumer loan, which was developed according to our client’s preferences. The Bank is meeting its clients halfway and is taking their principal need into consideration – no commission fee for loan review and granting. This new type of consumer loan is highly regarded by our clients.
In November 2018, the Bank began offering its clients Visa Money Transfer Fast Funds service which ensures express receipt of money transfers to a payment card without additional fees. Visa Fast Funds service ensures immediate transfer of funds to the recipient bank, indicating only the recipient’s card number. Thus, the Bank offered to our clients a convenient solution in case they need to send or receive funds quickly.
At the end 2018 the Bank signed a cooperation agreement with the development finance institution ALTUM on a number of programs for financing both individuals and legal entities. For legal entities – large and medium-sized enterprises, small and medium-size enterprises (SME), co-operative associations and enterprises of agricultural services. The Bank, in cooperation with ALTUM, offers various co-financing programs and credit guarantees to its clients. The Bank now offers its clients (individuals) two housing guarantee programs: “Housing guarantee for young specialists” and “Housing guarantee for families with children”.
The opening of the renovated Imanta branch was held in November 2018. At the end of 2018, the Bank operated a branch network comprising of 13 branches in Latvia, 7 of them in Riga and 6 in Latvian regional centres (Valmiera, Daugavpils, Rezekne, Liepaja, Venstpils and Jelgava). The Bank is continuously reviewing the branch network to increase its efficiency.
Last year was also significant in terms of investments in IT systems, and we continued to improve these systems to prevent money laundering but also to further develop our IT platform and offer better, faster and more efficient services to our valued clients. Over 1.3 million EUR were invested in the Bank’s technological development projects last year.
Significant investments were also directed towards training of the Bank’s team and recruiting new professionals. Employees are given the opportunity to regularly get acquainted with the newest AML trends, regulatory changes, as well as with the experience of local and international experts through various training platforms.
In 2018, 28 new professionals joined the bank’s team for a total staff of 224, which is solid evidence of the Bank’s continued growth and development. On behalf of the Board we would like to thank all employees of the Bank for their dedicated work.
We are proud to say that almost 800 students have already finished studies at the “JuniorBank” school of financial competence. The set of lectures at “JuniorBank” familiarizes young people with the bank activities, with its products, technologies and professions of the bank, with the family budget formation principles and with the basics of business activity.
Priorities for the 2019
The banking industry continues facing huge challenges due to technology-enabled innovation, changes in client’s preferences, banks de-risking projects and to new regulatory initiatives. Our strategy is to identify the fields in which we can be competitive and work with focusing on niche products in which we have competitive advantage and superior knowledge. We will continue to evaluate all the opportunities in the ever changing banking world. We have set up even more ambitious plans for leasing, corporate landing, treasury and mortgage sales for 2019 and are working hard in order to reach the agreed targets.
The bank’s goals for 2019 are: to further increase activity of the existing clients, to increase the clients base with new local clients, to strengthen the Bank’s correspondent relations, while providing new and modified services which are matching our client’s needs. We continue investing heavily in innovation.
Significant investments in developing new technologies will continue in 2019; updating and developing new communications channels, covering new technologies and innovation, offering new products, improving mobile solution for all services, and upgrading the remote access in a user-friendly manner 24/7. The Bank’s brand-new internet bank has already been launched in March 2019. It provides new ways for clients to interact with the bank remotely, making our services more accessible and user friendly for our clients. Our primary objectives have been – to create user friendly internet bank and to simplify work therein. We are certain that its usage will be much simpler and more convenient both for physical and legal entities.
The Bank shall continue following the course started last year, by focusing much more actively on serving the local clients and the small and medium-sized companies (SMEs). Today Latvia is one of the fastest growing economies in Europe, and small and medium-sized companies provide a motor for GDP growth, therefore our duty is to help this segment with funding while offering them a full range of banking products.
We are looking forward to continue developing the Bank in 2019 successfully. We express our gratitude to our shareholders and clients for their loyalty and continuous support. We are grateful to our clients and business partners who continue to inspire us to search restlessly for innovative solutions every single day. Meanwhile, we continue to adapt to the changes in the financial markets and banking sector and we firmly believe that we will be able to further strengthen our relations with our clients and our position in the market.