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Weekly financial market overview 29.06.-05.07.

  Konstantins Goluzins, CFA Head of Asset Management Phone.: (+371) 6700 0456 E-mail: trust@bib.eu LINKEDIN PROFILE   Main events of the previous week According to The Wall Street Journal, Saudi Arabia promised to start a new price war in the oil market, if other members of the agreement to reduce oil production do not compensate for non-compliance with quotas. According to the publication, Saudi prince Abdulaziz bin Salman Al Saud recently delivered an ultimatum to Angola and Nigeria, demanding that their leaders announce a clear plan to reduce oil production. During the OPEC videoconference on June 18, representatives of these countries stated that they were not ready to undertake specific obligations to limit production volumes. In response, Saudi Arabia made it clear that it was ready to start selling oil again at a reduced price, which would harm the economies of Angola and Nigeria. The previous agreement was signed by OPEC participants and countries outside the cartel, including Russia, on April 12. It began to operate on May 1. According to the initial conditions, it was planned that in period from May-June the parties involved will reduce oil production by 9.7 million barrels per day. Then they had to proceed to a gradual increase: since July, the reduction was to amount to 7.7 million barrels per day, and from January 2021 to April 2022 - 5.8 million barrels per day. Yet in early June, the parties involved changed the terms and agreed to extend the current agreement to reduce oil production until the end of July. At the same time, countries that failed to fully comply with the terms of the agreement, pledged to compensate for non-compliance with quotas over the next three months - July, August and September. There has been a record increase in the number of people infected with coronavirus in the United States. Last week, more than 50 thousand new cases were detected in the country daily. At the same time, in early June, according to the US CDC, approximately 14 thousand new infections were recorded each day. Then many states began quitting quarantine and lifting restrictive measures. Now states such as California, Texas, Florida, Arizona and Georgia have become new epicenters of the disease, they are gradually returning bans, closing restaurants and cafes, parks and other public places. WHO continues to record daily increase in new cases of coronavirus that now stands at global record highs, which gives a reason to talk about the risks of the second wave spread of the coronavirus. Economic data US. The unemployment rate in June fell by 2.2 percentage points to 11.1%, and the number of new jobs in the non-agricultural sector amounted to 4 million 800 thousand, which is 1 million 800 thousand more than expected and 2 million 100 thousand more than a month earlier. Initial jobless claims for the week was recorded in the amount of 1 million 427 thousand, which is 55 thousand less than the week before yet 72 thousand more than predicted by analysts. Eurozone. The consumer price index in June rose by 0.3% compared to May; annual inflation also amounted to 0.3% in June. The growth of the core inflation rate excluding food and energy resources in June amounted to 0.8% yoy. The unemployment rate in May rose by 0.1 percentage points, amounting to 7.4%, which was lower than the 7.7% expected. China. According to Caixin Bank, in June the PMI index of business activity in the manufacturing sector grew by 0.5 percentage points and amounted to 51.2 points, in turn, according to the National Bureau of Statistics of China, the PMI Manufacturing index in June resulted in 50.9 points. Key events this week On Tuesday, data on industrial production for May will become known in the Eurozone, Japan and the UK, and the US will report on price increase in June. On Wednesday, the Bank of Japan will report on its decision on the key interest rate, as well as on a further QE steps and the US will publish data on weekly changes in oil reserves. On Thursday, China will publish data on second-quarter GDP growth, as well as data on retail sales, industrial production and unemployment in June. In turn, the US will report on the initial jobless claims for the week and the ECB will report on its plans to stimulate European economy. On Friday, inflation figures for June will be announced in the Eurozone. The information provided herewith has an informative nature. This information cannot be regarded as an offer or recommendation for purchase, storage or sale of securities, or as an investment recommendation, an investment survey or a consultation on investments, or a recommendation to entrust management of your assets to the specific investment manager. The Client is fully aware and undertakes all risks involved in the investment. This information is prepared by AS Baltic International Bank.

Baltic International Bank aims for the title of the Best Digital Bank in Central and Eastern Europe

In April, Baltic International Bank introduced the new Internet Banking to its customers, offering improved functionality, increased user friendliness as well as updated security solutions. The next step is participation in World’s Best Digital Bank Awards organized by Global Finance Platform. “We have entered the competition both in the main category, Best Digital Bank, and in two subcategories, which we will not disclose yet, but we are positive that the ambitions we undoubtedly have are justified and the Internet Banking created by us can compete internationally!” admits Jānis Osis, Head of Digital Channel Development. The Internet Banking of Baltic International Bank provides for multilevel signing of payments and multilevel approval of applications as well as for using the function of instant payments, which can be selected from the list of beneficiaries. A smart payment form that adapts itself depending on the customer-posted information has also been introduced. To process several payments in a quick and easy manner, the Bank has implemented batch processing functionality (or import of bulk payments) and export related to the generation of account statements, a search function and simultaneous approval of several payments.  Over the twenty-one years of its existence, World’s Best Digital Bank Awards has become one of the most prestigious competitions, and receiving an award in any segment of the competition is considered one of the highest recognitions in the industry, demonstrating excellence in digital financial services.

Baltic International Bank insures employees against contracting Covid-19

Baltic International Bank has taken out insurance for all employees of the Bank, insuring them against the need for inpatient treatment of Covid-19 as a result of contracting Covid-19. This is financial insurance, which provides for financial support in this situation. Inga Auziņa, Head of Human Resources Management at Baltic International Bank, points out: “Undoubtedly, one of the biggest recent challenges and, at the same time, priorities for us, as well as for many other enterprises in Latvia, has been taking care of our employees during the COVID-19 outbreak. Along with the distancing standards, disinfection, remote work, technological capabilities and other factors that we provided to Baltic International Bank employees, we have learnt a way of coexisting with this “unknown” factor. Covid-19 insurance is nothing short of an essential opportunity to take care of employees and provide the necessary support if necessary, and as an employer we consider this opportunity to be highly important. This insurance is an additional guarantee in the new circumstances in which we will have to live for some time more and which we need to adapt to.” Covid-19 insurance is an accident insurance service of IJSC BALTA. “In a short time, the Covid-19 viral infection has completely changed our lives, creating a number of challenges for everyone, while making safety and stability the main public priority. Businesses also face serious challenges, both economic and human. As the state-level restrictions are gradually lifted, more responsibility for the epidemiological and social safety of the work environment will be put on the shoulders of employers. Employee support has never been more important than today, and we are pleased that companies are aware of this and are actively using the opportunity to support their employees, taking care and providing additional protection in these difficult times for everyone,” says Ludmila Ščegoļeva, Personal Insurance Product Manager and Risk Underwriter at BALTA. Baltic International Bank employs 215 people.

Capital adequacy ratio of Baltic International Bank exceeds the regulatory threshold

In Q1 2020, JSC Baltic International Bank was active in continuing the implementation of the previously defined business strategy, strengthening its position as a local capital bank and focusing on sustainable development and working with local customers in the long term. The Bank strengthened its capital adequacy ratios, which reached 17.31% (total capital adequacy ratio) as of 31 March 2020, exceeding the requirements set by the FCMC. As of 31 March 2020, the Bank’s liquidity coverage ratio (LCR) amounted to 176%, significantly exceeding the requirements set by the FCMC. These ratios will make it possible to resume lending in the remaining quarters of 2020. Evaluating the progress made in the first three months of the year, Viktors Bolbats, Chairman of the Board of Baltic International Bank, points out: “At the beginning of the year, we continued the transformation process, which was launched back in 2017 and became particularly pronounced in the next two years. We can say that the start of 2020 marked the completion of an extensive stage of work, covering structural transformations in various aspects, including changes in the customer portfolio, the offer of products and the customer service model. We have approved the Bank’s operational strategy for the next three years. In Q1 2020, the Bank finalized its capital strengthening plan and continued work on the quality of risk assets, which also provided for the creation of additional provisions. This was the main reason for the loss in Q1. Lending and support to local entrepreneurs will be one of the priorities of further work, and our advantage as a local capital bank is that the owners and management of the Bank are here in Latvia, we can see and understand the situation and we can make prompt decisions, and this is exactly what entrepreneurs in Latvia need at the moment, so that Latvian business dominates our assets. In addition, we have worked to ensure that a wide range of digital services is made available to customers – both in connection with the new Internet banking and by introducing possibilities to serve the customer regardless of his or her location. The state of emergency in the country has demonstrated that we are ready to provide all the necessary Bank’s services to the customer remotely.” The full report for Q1 2020 is available here.

Bank resumes in person service to clients

Dear Clients! Please be informed that as of May 13, 2020 Baltic International Bank resumes in person service to clients. From May 13 to May 15 we will provide in person service to clients from 11.00 am to 3.00 pm, but starting from May 18 – according to the usual working hours of the Bank. To provide as safe services to our clients as possible and not put the health of Bank’s clients and employees at risk, please take into consideration that you can visit the Bank only by prior appointment. To book your appointment please contact the Bank by phone: (+371) 6700 0444 or via email: info@bib.eu. You can also book your appointment by contacting your private banker. We will be happy to see you in person! However please thoroughly evaluate the necessity of your visit and if possible use Bank’s services remotely!

Viktors Bolbats: we will resume lending in the nearest future!

Baltic International Bank has recently increased its share capital, but the bank's board has approved the bank's strategy for the next three years. In an interview with LETA, Viktors Bolbats, Chairman of the Board of Baltic International Bank, emphasizes that the first cornerstone of the strategy is lending and support to local businesses, especially the small and medium-sized enterprise segment. The Bank will take all necessary actions to resume lending as soon as possible. The second cornerstone, on the other hand, is the maximum use of electronic and remote operating channels, which has in some ways even been helped by the emergency that has now been declared. What is the impact of the emergency on the bank's work? Have any projects stopped, for example, on attracting new customers? This situation is truly extraordinary and unprecedented for both us and our customers. We mobilized the opportunity to work remotely very quickly. More than half of our employees today work remotely and the work is in progress. Customers can also access practically all banking services remotely and, by applying in advance, can also use those services that can only be provided in person. You once had plans to attract new customers from the eurozone countries, Scandinavia. What is happening to these intentions now? As for attracting customers, we now mostly receive applications and questions from Latvian customers in remote communication channels. Demand from the regions you mentioned is now low and is due to the current situation. However, also taking into account the introduced restrictions regarding business trips, travel, we are now mainly focusing on the requests that come to us, and, as I have already mentioned, it is from Latvian customers. What about the long-term impact? Will the emergency situation have an impact on the banking sector as a whole? Given that this situation is global, it will have an impact on the economy both in Latvia and in the world. In all the crises we have already experienced, both local and global, a number of processes have taken place, including a change in the distribution of power in the market. However, the nature of the previous financial crisis in 2008 and 2009 was different, so unlike this crisis, this time we also see very strong support at the level of both national governments and the European Union and the European Central Bank. Depending on the decisions of policy makers in the world, in Europe and in Latvia, the position of entrepreneurs will also depend. It is also a time of opportunity, because it is in such unusual circumstances that many people have new ideas about what should be done differently, what to develop, where to invest. Due to the emergency situation, have adjustments been introduced in the process of changing the bank's business model? We have just approved the directions of Baltic International Bank's business strategy. Let me explain that there was a banking strategy that had been changed and that we were working on. However, the strategy, as a long-term document, requires regular evaluation and calibration. We are doing this in dialogue with the Financial and Capital Market Commission (FCMC), and the Board of Baltic International Bank recently approved the bank's strategy for the next three years. It is important that the bank has received confirmation from the FCMC that the bank's capital ratios meet and exceed the thresholds set by the commission, which accordingly means that the bank can return to the lending segment. The first cornerstone of the strategy I have mentioned is lending and support for local businesses, especially the small and medium-sized enterprise segment. The Bank will take all necessary actions to renew lending as soon as possible, at the same time carefully and thoughtfully evaluating the segment of customers to whom this service will be available.   The second cornerstone is the maximum use of electronic and remote operation channels. From the second half of April, our customers will have access to a new Internet bank, to which we have devoted considerable work, and I am pleased that we are continuing to improve the digital services segment. Therefore, the emergency situation, even in a sense, enables us to take the decisions that are strategically necessary. Are there any other changes in the business model change strategy? We have exceeded a certain characteristic that we have set for ourselves as a point of progress, namely that at the end of the year more than half of the bank's active customers were local customers. This is a record number for us historically, and this proportion continues to grow every month. In addition, we have achieved higher capital adequacy ratios than required. We have worked on the only criterion - for Latvian business to dominate our assets. In order to fulfill our promise to support local business, we need to develop further and we continue to strengthen our team with competent employees who have worked in large international organizations. In the summer, we plan to strengthen and supplement the bank's management team. It is also important that customer service is available and relevant to their needs. Therefore, in parallel with the already mentioned new Internet bank, we have introduced a number of options for serving a modern customer, regardless of whether it is located in Latvia or abroad.   Do you see opportunities in local business lending? I will say yes. Because even before the Covid-19 pandemic, the data collected by the regulator showed that the amount of loans issued to small and medium-sized enterprises, which are the backbone of Latvian business, has been declining every quarter for several years. We often look at the total loan portfolio of banks or the total loan portfolio of legal entities. However, small and medium-sized enterprises are an important part of the economy, and loans to them have fallen by almost EUR 500 million over the year. This means that more loans are repaid than these companies receive new loans. We see business growth opportunities in this segment. Our balance sheet today allows us to lend and lend in an amount that meets the demand of small and medium-sized enterprises. We expect growth in this segment, and demand there is consistently good. Of course, its correction in the market introduces Covid-19 infection, but in my opinion, it only increases the need in the market for fresh cash resources for business. Aren't you afraid that the crisis caused by Covid-19 will mean that many companies will no longer qualify for lending? The Latvian economy is basically a relatively small market that is growing due to exports. Therefore, the Latvian economy has been affected quite extensively by the crisis and the turnover of companies is falling. However, various forms of state support are currently available, including Altum instruments, which allow banks to grant new loans or facilitate the servicing of existing credit, allowing banks to reduce their risks in this situation, as the bank risks its depositors' money and capital. All this, together with reasonable expectations that the range of instruments available will be expanded, gives banks the opportunity to grant loans. Entrepreneurs also currently fluctuate between the two views. One has to pause, wait, not take risks. The second view is to look for new opportunities right now, to use support tools, to talk to the bank and to understand how to warm the economy together.   Baltic International Bank cooperates with Altum? Yes! We have a regular dialogue with Altum. Given that our bank has historically not been engaged in large-scale mortgage lending, we currently have virtually no exposure to Altum. We are now happy to establish and increase this relationship. We are currently happy to consider projects that will also have Altum guarantees. In order to strengthen its capital, the bank has increased its share capital by 2.7 million euros this year, attracting new shareholders as well. Who are the new shareholders - or residents of Latvia? The new shareholders are Latvian citizens. These are the bank's customers who have been holders of so-called subordinated capital for many years. Now, with this subordinated capital, they paid for the bank's newly issued shares. As a result, the bank's total capital grew and shareholder proportions changed. The 2019 report also mentions that it is planned to increase the capital by 10 million euros during 2020, attracting new shareholders. Is an increase of 2.7 million already included in these 10 million? This investment of EUR 2.7 million is just one of the measures that has already given us the desired result. The bank's capital ratios comply with the FCMC regulations and allow us to focus on new strategic directions - to issue loans and create new venture capital assets, namely to lend and invest money. It is important that this is possible now. The issue of shares is not an end in itself. The bank's founders and shareholders have a clear intention to develop the bank so that its contribution to the Latvian economy is increasing. By attracting new strategic partners, a new share issue can also be made. That is why I will say that it is not so much a question of money, because the bank's performance allows us to work as we want it to today. It is more a matter of development vision. Could such an additional share issue take place this year or, given what is currently happening in the financial markets, sometime later? I will not be in a hurry with the assessment of the financial markets for the time being, because the situation may develop in different ways. Until the Covid-19 crisis, we went ahead with our plan, the first step of which was to ensure that the bank met all the benchmarks set today, so that local loans could be issued immediately. The second step is to make sure that we have strategic partners for further development and growth. In addition, it is not just a question of investing in the bank's capital and money, but also of their bank's development vision and the fact that they can promote the bank's development both in Latvia and abroad. We have had meetings and consultations in a wide geographical area from Frankfurt to Washington. It is difficult to say exactly when such a partner will be attracted, given the circumstances. Sorry for the banal answer, but Covid-19 has made its own corrections in this regard as well. Currently, the largest shareholders are Valerijs Belokons and Vilorijs Belokons - what will be their participation in the bank's capital after the share capital increase? Will they keep their share proportionately, or will you look at greater shareholder diversification? Mr. Belokon, as the bank's founders and currently the largest shareholders, supports a development scenario of the bank, which will include attracting new strategic partners of the bank. In order to achieve a bank capital and asset size that will allow us to implement our strategy and support local business as much as possible, I do not rule out that the bank's capital may be doubled by attracting new strategic partners. I can discover that the bank regularly receives offers to participate in the bank's capital from cooperation partners, customers. Nevertheless, there is a plan to attract strategic partners who could significantly increase the bank's capital. This, of course, will affect the proportion of the bank's shareholders. Raising capital is not an end in itself, but a tool to allow the bank to gain even more momentum, it is a vision for the further development of the bank. At the beginning of the year, Einars Repše became an advisor to Valerijs Belokons , Chairman of the Supervisory Board of Baltic International Bank . What is his role in the process of changing the bank's business model and attracting new shareholders? Mr Repše is a strategy adviser. His advice is more related to questions about the bank's model and business strategy. Has Covid-19 also introduced adjustments in the plans to renovate the Blacksmith Quarter in Old Riga? Various scenarios have been discussed, but it has been decided that we will not freeze the construction of the Blacksmith Quarter. Together with the architect and the construction team, of course, we will think about how to proceed. The pace of work may not be exactly as intended for the project, but the work will continue. We approach this project responsibly and see it as another way to warm the economy. If we are talking about the performance of the bank, do you plan to work with a profit this year? This year we plan to work with a profit. Cooperation with the FCMC also envisages the submission of forecasts both in the context of the bank's strategy and in the context of the business plan. At the same time, Covid-19 has created an unprecedented situation, and we are not isolated from the outside world. That is why we are also thinking about efficiency solutions and cost reductions, so that we can achieve the results we expect. However, due to the fact that we have achieved capital ratios that allow us to increase the bank's loan portfolio, we can also increase interest income. For example, last year we achieved a record in commission revenue of almost EUR 10 million, which proves that this has been the right way for us. This revenue depends directly on customer activity. Interest income depends on the issuance of new loans and investments made. It is precisely these components that we currently lack to make a profit, which is why our plan envisages it. Could the bank also issue bonds to raise funds? There are two things here. One is that the bank itself issues bonds to borrow in the financial markets, the other is that the bank helps customers to issue bonds so that they can borrow in the financial markets. At present, our work plan does not include the issue of issuing bank bonds, although the bank has such experience and our bonds are listed on the stock exchange. I do not rule out the possibility that this issue may appear in our work plan, although our liquidity ratios do not currently require the use of such an instrument. We are currently following the development of the capital market, as we have a license that allows us to issue bonds both to ourselves and to our clients. When we say "investment bank", what we want to be and whose model we are developing, then we must remember that the amount of loans to be issued will always be limited by a certain threshold in the balance sheet. On the other hand, the possibility to help your clients to borrow in the capital market is unlimited or it is limited only by the market demand itself. That's why we have clients we work with for potential bond issues.   Given that the markets are currently in decline, would you recommend any of your clients to issue bonds this year? Let's see how the situation develops. Of course, the financial markets are currently in a state of shock. However, one thing is clear: there will be growth again, the economy will return to a new state of equilibrium, and all market players need to think about how to ensure this in their field as soon as possible. Exactly when it will be profitable to borrow in the financial markets, it is now very difficult to say, but one thing is clear - the financial markets will be as relevant after the Covid-19 crisis as before. If we return to the issue of changing the business models of former non-resident banks, it can be seen that not everyone is doing well and there is also talk in the market about taking over banks and mergers. Has anyone offered it to you? When it comes to investing in our capital, then, as I said, such offers have been made regularly for some time. But this does not really coincide with our vision of development, which I have outlined before. The advantage of local capital banks is that they are owned by a local team and run by a local team. This gives better opportunities to understand the needs of local businesses and to decide on the funding available to them. If our entrepreneurs take advantage of the opportunities that this crisis will create abroad and develop their business, then a certain redistribution of the market will take place, because they will have very relevant banks that will be able to go into and provide support. The market is on the move. I will not make any predictions, because it is up to each player to decide how he sees the market. Would you be interested in buying another bank in Latvia? Our interest is to support Latvian entrepreneurs, provide jobs and continue projects. That is our overarching goal. The way to achieve this is already a tool. We are a private bank and we are looking at all ways to achieve our ultimate goal. How do you currently assess the cooperation with the FCMC? We have a regular and constructive dialogue with the FCMC. The last two years have been very intense and each differed. In each complex process, something happens faster than we expected, something slower. Both our and the FCMC's focus was on capital ratios, as it is in our interest to increase our operations, but it is in the regulator's interest to make sure that all market players have an adequate amount of capital. That is why I appreciate the cooperation with the FCMC. I would also like to thank the FCMC for communicating with market players about the initiatives taken at the level of the European Central Bank and the European Banking Authority in the wake of the Covid-19 crisis to grant credit holidays to customers and not to immediately consider bad loans as bad. There were a number of nuances about which the FCMC communicated with banks several times a week. It is planned that in the future the FCMC could join the Bank of Latvia. How do you rate it? It is a decision at the political level, and let it remain a matter for politicians.

Small and medium-sized enterprises can receive support to access capital markets

Baltic International Bank invites small and medium-sized enterprises (SMEs) to apply for the attraction of financing via stock exchange as part of the European Union funds support program “Support for attraction of financing for small and medium-sized enterprises (SMEs) in capital markets”. Aim of the program is to help SMEs in Latvia to attract financing for their development via capital markets, allowing the enterprises to boost their international competitiveness and promote capital markets development of Latvia. This is the first program of this type in Baltic region. Bank offers to provide emission organizer services – develop debt securities provisions, prepare emission prospectus – documents required for the registry of emission in the authorised institutions, organize cooperation of the issuer with the stock exchange, as well as secure technical base for the performance of debt securities transactions. We are offering analytical and informative materials for the attraction of financing as well as maintaining of relations with investors both during the emission preparation period and also after the issuance of bonds in the secondary market. Baltic International Bank, Head of Corporate Finance Oto Davidovs explains: “Capital market development and bond issue of the enterprise is one of the sources of receiving external financing and for many years already it is used all around the world as an efficient and beneficial alternative to attract financing. It is very good solution for the companies with the growth ambitions exceeding the financing attraction possibilities banks can offer.” In comparison to Western Europe capital market of the Baltic countries is in its early development stage, although I have to emphasize that lately market can be characterized with rapid growth and bond issue as a tool for the receiving of the development financing for the company is growing in popularity.Oto Davidovs   In the frame of the European Union funds development period support program will be implemented as the pilot project and the total initially available financing is planned in the amount of EUR 1’ 000’ 000, meaning, EUR 800’ 000 EUR for the support of issuing of shares and EUR 200’ 000 EUR for the support of debt securities (bond issue). It is planned that open tender for the attraction of financing will be organized quarterly. Administrator of the program is Central Finance and Contracting Agency (CFLA). Support will be provided for the covering of the following preparation costs: Service costs of the organizer of emission (investment bank); Costs of preparing the emission prospectus or the securities registration documents; Costs of Due Diligence; Consulting costs of legal, financial, taxes, auditors, certified consultants. Support of SMEs is issued as a form of grants covering 50% from the eligible costs but not more than EUR 100’ 000 EUR for one applicant in the event of issuing of shares and not more than EUR 20’ 000 in the event of issuing the debt securities (bonds).

Local capital banks are ready to invest EUR 220 million in the Latvian economy

Changes in the Latvian banking industry, the increased attention to it from international organisations, and the challenges of the time required Latvian banks to seriously restructure development models and search for the new ones. In a short time, these tasks were successfully completed by the small mobile banks with local capital that managed to find their niche in the financial market and prove to be necessary for the Latvian economy. Individual approach As a co-chair of the Strategic Development Committee of the Finance Latvia Association, I would like to emphasise that lending and investing in Latvian business is becoming a priority for local capital banks. Knowing and understanding the local business environment allows them to be closely connected with national economies. Such banks are predictable, the names of their shareholders are known to the public, they are actively involved in the public life of Latvia and are interested in maintaining its stability in the long term. In 2020, three local capital banks – Baltic International Bank, BlueOrange Bank and Signet Bank – are ready to provide EUR 220 million in the form of loan funds for the development of the Latvian economy. This figure grows with every passing year. In 2018, said banks issued loans to local companies in the amount of EUR 61 million, while for 2019, the amount expected according to forecasts is EUR 170 million. If the cooperation of our three banks turns out to be successful, we will form a single platform for lending to local businesses. Apart from that, financing can be attracted through other investors or other forms, for instance, the issue of securities. Unlike major banks which have large flows of customers and do not always manage to serve all of them in more depth, we have the opportunity to work with each entrepreneur individually and delve into their problems. These are ambitious people, the engine of our economy, they need to be supported. Who will do that but us?   About new priorities Since 2016, Baltic International Bank has been making comprehensive and profound changes in the management structure, customer service and internal control system. And now we work keeping the new priorities in mind. Let me quote some figures. As of October 2019, the assets of Baltic International Bank amounted to EUR 300 million, while the total amount of customer funds managed by the Bank on the balance sheet or in the form of securities and assets under management was almost half a billion euro. The number of local customers grows every month. Now they make up 38%. 37% are citizens of the EU and the European Economic Area, and 25% are citizens of other countries. The demand of local customers for account maintenance and loans is also growing. I think this growth will continue next year.We plan to strengthen all the teams responsible for providing financial services to Latvian customers and those of the euro area market. Being in a single European banking union, we use the experience gained in servicing international customers in order to work with the euro area residents. Baltic International Bank has extensive experience in international business. Today, in many Latvian companies there is an international owner, an international tenant of a building, an international client. And here our competence can help to figure out which financing instrument to use, what kind of consultation is needed. We will help the customer save both time and money. We also help in financing projects of Latvian businessmen abroad where special competency is needed; we will give a tip as to how to get a guarantee, how to protect your investment in a particular country. Now, we are developing cooperation with the development finance institution Altum. They give to Latvian entrepreneurs guarantees which reduce banking risks. Environmentally friendly projects The volume of lending always depends on three things – the availability of actual capital, the amount of the capital requested by the regulator, and the strategic decision of the bank itself. Every bank decides what kind of company it is ready to support: whether it will finance a company operating in a neighbouring country or will develop a Latvian company with foreign capital; whether it considers our real property market stable and so on. Every bank has its own priority scale. The goal of Baltic International Bank is to be a bank that, together with customers, invests in environmentally friendly and long-term projects aimed at a sustainable future. The Bank’s development strategy has been developed until 2030 and provides for a whole range of measures necessary to meet this goal. In 2017, we began to implement the globally recognised ESG approach. It was chosen as a model that meets our beliefs and “packs” the Bank’s development strategy into an understandable and logical structure. The essence of the ESG approach The term ESG means Environmental, Social, Governance (environment, social responsibility, and corporate governance). This is the approach that defines the appropriate model of social behaviour. It stands on three pillars.   1. Environmental impact. This means taking care of reducing greenhouse gas emissions, saving natural resources, reducing carbon dioxide emissions, and using renewable energy. In this area, our Bank, together with customers, implements investment projects associated with improving energy efficiency, production and use of renewable energy. Through the Bank, customers have the opportunity to receive income from capital gains and, simultaneously, to improve the environment. 2. Social responsibility provides for the care of employment, human rights, health and personal safety, and the protection of various social groups. Baltic International Bank actively participates in the country’s public life, contributes to the creation of new jobs both by providing financing to companies and through its own development. Throughout its history, the Bank has supported the preservation and transfer of artistic and cultural values ​​to future generations. Significant projects include publishing books, participating in the Annual Latvian Literature Award (LALIGABA), creating a mobile application for the National Museum of Art, and many others. 3. Reliable corporate governance includes taking care of the effectiveness of this management, of an impeccable reputation, and prevention of the corruption risk. Baltic International Bank pays particular attention to open communication with customers, partners, employees, compliance with international and Latvian laws, as well as ethical standards. All three things – ecology, social responsibility and corporate governance – are closely related. A well-designed control system can ensure that many conditions are met. As a business organisation, we have assets worth EUR 300 million, provide 219 jobs in different buildings that use electricity, heat, consume water, paper, produce garbage, etc. A socially responsible employer should think about all that, as well as about the projects that he or she supports. The Bank has many faces If, in former times, profitability was the only thing in the mind of a business, and, for instance, energy saving remained for many companies in the good to have category, the role of business has now expanded much. Think, for instance, of the green bonds of Latvenergo, or an ESG strategy for banks. It got to the point that the European Banking Authority (EBA) supervising European banks said that a long-term, responsible approach would be introduced into the regulations. So, our choice is a farsighted decision. The banking industry will be the one where such an approach is a must have. Our customers are citizens of the world, whether they are residents of Latvia or other countries. Responsibility for resources is equally important to all of them. I believe the principles of ESG are close and understandable to everyone. To not be ashamed tomorrow Implementation of the ESG approach in the daily work of the Bank is a very ambitious goal and requires a lot of effort from us. This implies a change in thinking, habits of all employees of the Bank – from the chairman of the Management Board to the cleaner. I understand that I have a great responsibility because the whole team looks at me. Therefore, I learn daily myself and am ready to help others. I formulated a new approach for myself as follows: so that tomorrow there would be no shame for the decisions that are made today. If more and more business organisations adhered to this principle, then one could count on qualitative changes in society. The answer to the question “what needs to be done to change” is one – to learn, make mistakes, correct mistakes and learn again. You cannot become specialists in a new approach in a month or even a year, but you can constantly go forward. Our team is not afraid to experiment; we look at the reaction of people which allows us to adjust our actions and specify goals. And there are three things to consider. Firstly, you must understand that the decisions you make today should work for the future. Secondly, you need to clearly understand what it means exactly in your work, for your customers, for your employees. This question is far from being obvious; it takes time to understand how you will implement the decision you made in real life. And, finally, it is necessary to start delivering on promises. I want to emphasise that we are not doing this for self-promotion; this is our position. The Bank is a public organisation, and it is important for us that society knows our point of view. Being proactive Our "child" – the ESG model – has been maturing for three years. We made the decision just in time. Now, evaluating global trends, we see how our chosen strategy fits into them. Responsibility and transparency are, in fact, the main requirements of international organisations for the banking industry. We started thinking about these things a few years ago and were proactive. It was clear that banks can only develop along the path of responsible business. Banking business is one of the oldest types of entrepreneurship; people started lending and borrowing money a very long time ago. And this business has always been based on trust. Not only do we want openness and transparency from customers and partners, but customers and partners expect the same from the Bank. It is always a two-way road. This is the approach provided by ESG. Not a single bank exists on its own; all the banks in the world are parts of an ecosystem. Yes, each financier, investor, customer may have his or her own position, own capabilities, vision of the business, but each should have his or her own long-term approach. Most of our partners have it, especially those from large countries. The ESG strategy is one of the most popular strategies in the USA and Europe. Platinum as a symbol of endurance ESG touches on all aspects of the Bank’s activities: those that seem obvious – management, lending, investments, services, and those more subtle ones – human resources, IT, and participation in public life.   Baltic International Bank supports many public projects. I will give an example of the "Library" project which popularises the books of Latvian writers through social networks. I was very pleased it was supported by other banks without even being aware that it was our project. And the way it developed proves the importance of our initiative. We also support the publication of books by local authors. The project that we started in 2018 and which we plan to complete in 2020 is the publication of the unique book “Family Coats of Arms in Contemporary Latvia”. Alongside, we work on the organisation of the exhibition together with the Ministry of Culture. Baltic International Bank is located in Old Riga; here, we own several buildings of cultural and historical significance. Reconstruction is currently underway in the quarter between Kalēju and Vecpilsētas streets. In old houses, we strive to preserve the spirit and style of former times. At the same time, modern workplaces, environmentally friendly conditions will appear here as the latest technologies are used in the reconstruction. Keeping the unique look of Old Riga, we create a modern and comfortable environment in it. This year we were the first of the Latvian banks to receive the highest platinum category of the Sustainability Index. It is assigned by the Institute of Corporate Responsibility and Sustainability which, according to the world-recognised methodology, helps Latvian companies assess their level of responsibility. Baltic International Bank has been undergoing such an audit since 2014 and this year it received the highest rating. Given that platinum is very resistant to external influence, we regard this as a good symbol of resistance to difficulties. Contribution to the future Banking is a very sensitive area. Now, it is of utmost importance for all of us to show that we comply with modern conditions and the requirements of the time. And, of course, the reputation of the industry is very important. For me, ESG is our contribution to tomorrow, something to be proud of in the near future. We adopted ESG principles not as a project that can be started and completed, but as a constant forward movement that has become an integral part of our business. Of course, each bank has its own history and its own choice. But in general, I think that ESG will become an “explosive topic” for Latvian banks, and sooner or later all financial and credit institutions will begin to move in this direction. By our decision we moved with the times and requirements thereof. I am convinced that our path will become a model for others. We specified the year 2030 as the time when we will have achieved the goal. By this time, we should become a bank that takes full advantage of the possibilities of responsible investment for customers and participates in them. We will not only offer customers environmentally-friendly and investment-friendly facilities, but we will also invest in long-term projects that help Latvia and the Latvian economy to grow and develop. Article in “Free City” with Viktors Bolbats. (RU)

Financing Sustainable Businesses – a Local Step with a Global Impact – Viktors Bolbats

Viktors Bolbats, Chairman of the Board of Baltic International Bank, Co-chairman of the Strategic Development Committee of the Financial Industry Association gives an expert opinion to the Forbes Latvia magazine. The word ‘sustainable’ is used very often now. So, what is actually meant by sustainable? Sustainable means to be supportive, to promote and increase; one that does not harm the environment or deplete natural resources, while promoting the ecological balance in the long run. This concept has much in common with the operating principles of our Bank – Baltic International Bank, which is in line with the ESG (Environmental. Social. Governance) approach, which provides for responsible actions in the areas of both environmental conservation and social responsibility and governance. Already now the Bank is supporting several sustainable projects, including in the advanced field of wind energy. Moreover, green funding is no longer marketing but a manifestation of the awareness of citizens; today it is also a practical consideration in terms of the possibilities and costs of raising funds. It is also expected that with time these principles will be set on a regulatory level. Thus, for example, banks that will have already introduced sustainable and green project financing will be acting proactively and will be one step ahead of the others. One of the green financing manifestations is green bonds originating in Scandinavia. What does the green bond mean? It is the same form of securities that investors buy, but already initially tied to certain indicators of rating agencies that reflect the presence of the green factor. A company issuing the green bond is already immediately informing the market that the borrowed funds will be used for projects that are environmentally and socially friendly. In Latvia, examples of such companies are green bond issues by Latvenergo and Altum.   Scandinavian experience shows that green financing can also be beneficial. If two different bonds are simply put on the table – one green and one regular, then we conclude that a green bond can usually be released at a lower price, so funding is potentially cheaper. This is another sign that green funding is no longer simply a subsidised initiative, but a valuable and profitable project. Also in Latvia, the issuance of bonds – as an additional opportunity to raise funds for business growth – is becoming more popular. In line with the strategic move toward a powerful investment bank, Baltic International Bank has obtained a licence to organise a bond issue that allows one to ensure capital raising for companies in the form of bonds. We are already offering our customers companies that are developing in environmentally friendly ways. The currently very topical term, not much discussed in Latvia and directly linked to sustainable business financing, is ‘taxonomy’. In the European Union, (ES) taxonomy is a classification tool to help investors and businesses identify environmentally friendly economic activities. Why is taxonomy so important? As Europe needs to raise private capital for sustainable activities, EUR 175 to 290 billion of private investment needs to be attracted additionally to meet the climate targets. Taxonomy is applied to financial market participants with regards to financial products or corporate bonds traded as sustainable financial products. As I mentioned at the beginning of the article, the exact definition of terms is of great importance, so taxonomy aims to standardise the concept of environmentally sustainable investment across the EU, thereby making it easier to invest in environmentally sustainable economic activities. The establishment of a European framework and uniform standards can have a positive impact on the provision of services of “green financial instruments” (e.g. green bonds, mortgage loans for energy-efficient housing) and on strengthening the confidence of market participants in these instruments. In order to include an economic activity in the EU taxonomy, it must meet at least one environmental objective without causing significant damage to the remaining five. Six taxonomy environmental objectives are climate change mitigation; adaptability to climate change; sustainable use and protection of water and marine resources; transition to a circular economy; waste reduction and recycling; pollution mitigation and control; and protection of healthy ecosystems. Taxonomy sends a serious signal to corporations and other private companies, investors, banks and public authorities about future economic trends, investment opportunities and risks. The EU taxonomy provides more clarity to investors, issuers, policy makers and regulators. This combines international environmental objectives with investment practices and sends a clear signal on activities that are in line with environmental objectives.   Taxonomy will also affect lending policies of banks, and here is a home task for banks, educating clients about the availability of funding at local capital banks, both in the form of credit and bond issuance. The latest data from the Financial Industry Association regarding the lending index in the business segment shows that this year the ability and willingness of entrepreneurs to borrow has reached a record high level in Latvia, with the lending index rising to 114 points compared to 110 points a year earlier. Certainly, each bank has a different strategy, business models and opportunities, but at the moment local capital banks are entering the segment of lending to local companies increasingly more rapidly. It is also one of the most important opportunities for a new business model of Baltic International Bank, since lending to small and medium-sized enterprises is a way of generating profit that allows local businesses to be supported in a sustainable way. We are prepared to support the local economy in even larger volumes, so discussions of banks with the regulator are ongoing regarding options to review the capital adequacy ratios. Forecasts show that local capital banks can inject a total of around EUR 220 million into the national economy. Taxonomy is currently in the form of guidelines, but in time these guidelines will form a framework for the EU legislation and regulatory rules, requiring additional standard criteria for corporate lending and financing to also assess the sustainability of businesses. In this case, Baltic International Bank has acted urgently, since the ESG evaluation criteria have already been met in terms of both investment and lending, so it will be easier for us to work with customers at a time when the principles of taxonomy are no longer encouraging, but mandatory, and we will not need to implement any reforms or rearrangements in a hurry, but we will simply be able to continue that which has been started. Companies will also have to report on their environmental impacts. To promote good practices, Baltic International Bank has already issued its first nonfinancial report this year to share its environmental, corporate and management practices. This includes factors and measurements according to NASDAQESG Reporting guide for Nordic and Baltic countries. It should be understood that the financial sector – private capital – plays an important role in the rest of the climate-neutral economy. Taxonomy aims to provide practical guidelines for policy makers, representatives of different sectors and investors on how best to support and invest in economic activities that contribute to achieving a climate-neutral economy. A wide variety of sectors are covered, including energy, transport, agriculture, production, information and telecommunications technologies, real estate. Read Viktors Bolbats expertise in the November issue of Forbes Latvia (LV).

Baltic International Bank presents an ESG Report at the Non-financial Reporting Seminar organised by the Institute for Corporate Sustainability and Responsibility

At the end of September, the Institute for Corporate Sustainability and Responsibility (InCSR) hosted an experience exchange seminar and a discussion on non-financial reporting for Latvia’s largest and most responsible companies during which Baltic International Bank presented its ESG (Environmental. Social. Governance) Report. Viktors Bolbats, chairman of the Bank’s Management Board, shared his experience in implementing the sustainability strategy and presented the Bank's future goals. Good practice examples were also shared by the Institute for Corporate Sustainability and Responsibility, JSC Latvenergo, Coca-Cola HBC Latvia LLC, as well as the representative of Sustinere, a non-financial reporting expert from Estonia – Marko Siller. At the time of presenting the Bank's first non-financial or the ESG Report, Viktors Bolbats, chairman of the Management Board of Baltic International Bank, emphasized the importance of sustainability: “Nowadays, sustainability is no longer an option but a necessity. In my opinion, ESG (or sustainability) means doing things today that we can be proud of tomorrow and further on. The ESG approach is appropriate for us since it covers all three areas that the Bank already perceives as the pillars of its development. ESG has both environmental and social considerations as the Bank is not only a financial institution, a credit institution, but also a consumer of energy and other resources, a taxpayer, an employer. The ESG (Environmental. Social. Governance) approach pervades all of the Bank's core business areas; our ESG goals are not declarative, but implemented in all day-to-day processes.” We have to understand that in this age, not only we expect openness and transparency from our customers and partners – they also expect it from the Bank. The Bank is part of an ecosystem that must work responsibly with this system. Banks carry a heavy burden of social responsibility. They also have the opportunity to support and engage in responsible investment transactions that benefit the national economy as a whole. With this in mind, we have set the Bank's strategic goal for the year 2030 to specialize in profitable, environmentally friendly and sustainable investments,   adds Bolbats noting that the ESG approach is also a change in habits and mindset where leadership support, clear objectives are essential and indicators, employee engagement and effective internal communication are measurable. “More and more companies, both in the world and in Latvia, are not only accountable for their financial performance, but also for their impact on the employees, environment and society. This is, of course, influenced by global developments, international regulation and the demand from civil society for greater openness and mitigation of the negative impact of business. In addition, entrepreneurs are beginning to realise that non-financial reporting helps improve risk management and long-term environmental and management performance thus contributing to competitiveness,” explains Dace Helmane, CEO of InCSR. After the attendees were interviewed on key criteria for a meaningful non-financial report, it was concluded that a meaningful non-financial report should be based on a completely fair approach (nearly one-third or 27.3% of the participants stressed it) while data was ranked second (19.5%). Among the topics covered in non-financial reporting, readers are most interested in corporate governance and business ethics (28.4%) followed by data privacy and protection issues (17.3%), and customer and consumer satisfaction aspects (14.8%). Marko Siller, a non-financial reporting expert from Estonia, said: “All major companies need to look for the most effective ways to showcase their progress and influence. If a company does not do so, it no longer speaks the same language with the rest of the business community – customers, suppliers, investors. Today, beautiful, self-praising words must be proven with data, measurable goals, and real results.” Guntars Mikhailovs, international relations specialist at JSC Latvenergo, explained to the audience the involvement of stakeholders and their great role in meaningful reporting: “Stakeholder engagement is an essential part of good governance and sustainability for any organisation. It provides insight into issues of mutual interest, improves employee motivation, increases stakeholder confidence and, as a result, contributes to the organisation's value. The Latvenergo Group regularly reviews the views of stakeholders on past cooperation and aspects that are important to the Group's sustainability as well as discusses proposals to improve the Group's performance. The design of the sustainability report and the format in which stakeholders receive relevant information about the company are also important.” Dace Dricka, public relations manager at Coca-Cola HBC Latvia LLC, said she was very proud of Coca-Cola HBC Latvia's achievements in the field of sustainability, and also wanted to remind the attendees that sustainable performance never stops, so businesses must focus both on achieving their long-term sustainability goals and communicating properly to the public and stakeholders since only such an approach will be viable in today's corporate socially responsible environment. The event was attended by more than 30 different companies and organisations from different sectors – finance, mobile, energy, logistics, manufacturing, etc. Institute for Corporate Sustainability and Responsibility The Institute for Corporate Sustainability and Responsibility (InCSR) was established in early 2011 with the aim of strengthening the sustainable development of the state and local community by educating the public and raising awareness of responsible and forward-looking behaviour and promoting the development of civil society. InCSR provides reliable measurements, supports and promotes civil society activities, organises and participates in various projects, seminars and campaigns on proactive and safe behaviour, and provides a platform for the exchange of experience and opinions.

Valeri Belokon: The existence of our nation in 200 years depends on literature

Valeri Belokon, the main shareholder of Baltic International Bank and the long-standing patron of Latvian literature, who also supports the current project ‘Library’ aimed at promoting reading, believes that the existence of the literary industry is of great importance for our entire nation. Preserving literature, we preserve the Latvian culture and language. What do we leave behind, apart from language? We leave the thoughts of our people. If we lose the word, we lose the thought. Books should be published to enable us to keep a big, complete, philosophical thought.Valeri Belokon   In the seventh interview in a series of video stories within the framework of the ‘Library’ project, Valeri Belokon gives a peek into his private library and tells about his personal motivation prompting him to provide support. The books have everything that we need for our life and for the life of our soul,’ he says. ‘Support to literature is my vocation and the voice of my heart. A person can support literature only if he or she understands it and needs it. It is not that literature goes with hat in hand.Valeri Belokon   The patron also expresses his views on the role of literature in the preservation of the Latvian language. ‘We are in a situation where we need to maintain our language and culture. I believe that this is what we are doing at the moment and what definitely have to keep doing.’ In an interview with Baltic International Bank, the main shareholder points out, through laughter and, at the same time, very seriously, that all the answers to questions can be found in books. ‘Nowadays, people think that Google has all the answers, but I have to disappoint them by saying that this is actually not true. Books provide all the answers,’ he says. Watch full interview The full interview with Valeri Belokon is available on the home page of the ‘Library’ project at www.manabiblioteka.lv. There you can also find six other interviews published before: with writers Nora Ikstena and Māris Bērziņš, Zbigņevs Stankēvičs, metropolitan archbishop of the Roman Catholic Church, Andris Vilks, director of the National Library of Latvia (NLL), Kārina Pētersone, director of the Latvian National Library Support Society, and Vaira Vike-Freiberga, former president of Latvia. In the coming months, it is also planned to publish an interview with Uldis Bērziņš, poet and translator, Imants Lancmanis, Latvian art historian and heraldry specialist, and Sanita Stinkule, head of the Department of Ethnography of the National History Museum of Latvia. The project ‘Library’ has been created by Baltic International Bank, a long-standing patron of Latvian literature. The ‘Library’ initiative proposes to tell stories about the importance of literature in people’s lives, stories about personal libraries, their content, emotional and professional value. The development of Latvian literature is one of the long-term public support endeavours of Baltic International Bank. Believing that knowledge of culture and history of one's country is the basis of the national identity of each nation, Baltic International Bank financially supports the publishing of books of national importance and implementation of literary projects.

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