Luminor generated increased pre-tax profit of 51.7 million EUR in the fourth quarter, a 10.7% increase on the comparative prior year period. Profit for the period was 59.3% lower than the same period last year at 16.4 million following the introduction of higher taxes in Latvia and Lithuania.
“Last year a lot of focus was on lending and the sharp rise in Euribor rates. A special fee was imposed on banks in Latvia, part of which will be paid to mortgage borrowers as a compensation for the rise in Euribor rates. Over the course of the year, Luminor expects to pay more than 25 million euros to the Latvian state budget for this purpose. At the same time, this year we also expect positive changes in the law on mortgage refinancing, which would make the process simpler, faster, and cheaper for customers, as well as the lifting of the ban on advertising mortgage loans, which in turn would raise public awareness and boost competition between banks,” said Kerli Vares, Head of Luminor bank in Latvia.
Year-on-year pre-tax profit grew from EUR 142.4 million in 2022 to EUR 273.2 million in 2023, driven principally by an improvement in net interest income due to increased interest rates. As new taxes were introduced in Latvia and Lithuania, net profit increased for the period from EUR 124.7 million in 2022 to EUR 194.7 million in 2023.
Kerli Vares points out that although the rise in Euribor has resulted in higher loan payments, lending has not slowed down: “At the end of the year, the total amount of financing provided by Luminor to individuals and companies in Latvia amounted to 2.86 billion euros. At the same time, considering the rise in Euribor, term deposit rates were raised to 4%, and customers were keen to take advantage of this opportunity, bringing total deposits over the year to 3.04 billion euros. At the same time, we need to continue educating the public about savings, because according to Luminor’s survey data, a large share of the population in Latvia – 40% – still saves in cash rather than depositing and receiving a return.”
In the fourth quarter, Luminor improved its product offering, focused on growing its current account and deposit volumes in Retail Banking, and continued to build its business around its customers. In Corporate Banking, Luminor once again supported the development of Baltic capital markets leading transactions across a number of sectors. The bank signed an agreement with the European Investment Bank to facilitate additional lending for Baltic SMEs and support the green transition of the economies. Sustainalytics recognised Luminor’s progress when they awarded the bank the lowest ESG risk rating of any of the largest banks in the Baltic region for the second time.
The bank improved its net interest income in the fourth quarter, as interest rates increased after years of extraordinary low rates and limited profitability. In line with its strategy, Luminor made additional investments in its IT systems and processes and strengthened its organisation. These investments contributed to an increase of 37% in operating expenses for the quarter. Luminor’s credit quality remains robust with non-performing loans at 1.9% of gross lending.
As compared to the fourth quarter of 2022 the bank’s cost to income ratio increased marginally to 56.7% and it generated a reduced annualised return on equity of 3.7% on a post-tax basis. Luminor’s liquidity and capital positions are strong. At quarter end the bank’s Liquidity Coverage ratio was 200.7% and its Common Equity, Tier 1 and Total Capital Ratios, including net profit for the period, were 24.1%.
Luminor Bank CEO, Peter Bosek, said: “We have delivered a solid performance in the fourth quarter and strengthened our strong liquidity and capital positions, which is testament to the hard work of our teams to support our customers.
While we remain confident in the long-term outlook for the Baltic region, we are alert to the short-term uncertainty, and during the quarter we maintained our focus on driving efficiencies and continued to invest in our future capability, systems and processes to ensure we can deliver our strategy and improve the financial health of our customers and our home countries.”
Luminor’s Q4 2023 interim report can be found HERE.
Luminor is the leading independent bank in the Baltics and the third-largest provider of financial services in our region. We serve the financial needs of individuals, families, and companies. Just like our home markets of Estonia, Latvia, and Lithuania we are young, dynamic, and forward looking.