Review of the Bank’s financial results
Year 2018 in the Baltic and Latvian banking sectors was marked with change. Baltic International Bank continued the ongoing process of transformation. In the end of 2016, Bank announced the transition to a new business model. Since then Bank has achieved a significant progress in this area, implementing necessary changes in the income generation, product and services portfolio, customer-servicing model, procedures of appointment of officials in the top-management positions in the Bank and in overall increasing of the Bank’s efficiency. Investment-based business model, alongside the individual approach, the Bank applies historically, puts customers and their needs in the centre. Main aim of the Bank is to offer responsible, modern and versatile investment solutions to existing and potential customers. In 2018, Bank obtained the necessary licences to provide bond issuance services to corporate clients and securities management services for licenced investment management companies.
According to the risk-based approach, Bank has reviewed and revisited its customer base reducing risk level in all main parameters. Average risk of clients is the focus of the Bank’s management with the aim to provide sustainable balance and establish a model based on the customer base sustainable both in regards to business and risk criteria. In 2018, total funds of the Bank’s customers increased up to EUR 301 million. Volume of assets under management in the end of 2018 reached EUR 74 million. In addition, the dynamics in regards to the value of the financial instruments in brokerage service deserves positive evaluation – in the end of Q4 2018, it reached EUR 178 million that is 47% more than in the end of 2017. Bank continues to bring new business strategy into life based on the customers with the investment needs and potential.
In the end of December 2018, amount of Bank’s assets reached EUR 286 million, decreasing by 4% in comparison to 2017. Amount of assets under management in the end of 2018 reached EUR 74 million, but the Bank’s own funds in December 31 2018 comprised EUR 64.2 million or 22.5% from the total amount of Bank’s assets.
In the structure of the financial assets of the Baltic International Bank at the end of 2018 the Bank’s high-quality liquid assets or assets carrying investment-grade rating and due from the Bank of Latvia comprised EUR 157.1 million or 55% of the total assets. Investments in government bonds totalled EUR 17.5 million or 6.1% of the total assets.
In 2018 main tasks defined by the management of the Bank is transformation of the income structure, replacing the income flow provided by the former business model with strong domination of fee income structure that completely complies with the new model and income target structure.
In the end of 2018, the operating income of Baltic International Bank totalled EUR 13.92. Bank was able to conclude 2018 with larger operating income and reducing operating expenses. Net fees and commissions totalled EUR 8.45 million, or more than EUR 5 million more than 2017. The percentage of the net interest income in total operating income increased up to 60.9% compared to the same period last year when the income totalled 26.1%.
In regards to fee income, Bank management has to provide the continuation of the trend to reduce income amount from the transaction services provided to foreign customers and it will depend on the complete introduction of the Bank’s business model.
Administrative costs in the end of 2018 reached EUR 13.39 million. Management of the Bank was able to combine increase of income with optimization of costs to achieve more efficient business model and at the same time find options to invest into the development of the Bank and improvement of the Customer service. Bank has achieved a significant progress in the direction towards greater fee income, that included customer service fees, brokerage and custody fees.
Significant de-risking exercises as well as focused attention to asset quality has driven Bank’s operational results in 2017 and 2018. Bank has significantly improved fee income generation, as well as delivered on cost efficiency targets, substantially decreasing 2017 experienced losses. Focus on the quality of assets and savings are still the main driving force of the results of the Bank. Total financial result in 2018 was losses amounting EUR 1.9 million (in comparison to EUR 8.1 million losses in 2017). Bank plans to cover the losses from the profits of the following period.
In 2018, also the Baltic International Bank continued investments into the further development of the internal control system of the Bank, development of information technologies, online banking and infrastructure, as well as raising of qualification of the employees providing investment services and boosting of expertise in regards to AML/CFT issues in line with the international standards. These investments also affected financial results of the Bank.
The Bank’s liquidity ratios significantly exceed the regulatory thresholds. As of 31 December 2018, the Bank’s liquidity ratio was 76.35%. The Bank maintains a well-diversified structure of liquid assets represented by bonds (12.6%), due from credit institutions (6.7%), due from the Bank of Latvia (79.7%) and cash (1%). The liquidity coverage ratio (LCR) totalled 210%. The net stable funding ratio (NSFR), characterizing the availability of a stable funding profile in relation to the composition of assets and off-balance sheet activities, reached 154%. As of 31 December 2018, the Bank’s own funds totalled EUR 22.75 million. The Bank’s CET1 capital ratio was 8.79%. The total capital ratio reached 12.90%.
Capital position of the Bank will be strengthened during 2019 enabling further development of business model and customer service. In addition, majority shareholders of the Bank supports this position.