SEB Group Latvia ended 2022 with a positive financial performance and a considerable increase in a number of significant segments. Among other things, there has also been an increase in the number of clients who appreciate the professionalism and quality of the services provided by SEB Group Latvia and have chosen to entrust their financial management to SEB Group companies.
The change in the European Central Bank's monetary policy (ECB) and the decisions to switch key interest rates from negative to positive rates have changed the composition of SEB Latvia's earnings, which have increased by 25% compared to the previous year. This is due to the efforts of the ECB to contain and reduce inflation, which made money more expensive for market participants.
In anticipation of a possible slowdown in economic growth, the financial resilience of the bank is also important, as measured by the capital adequacy and liquidity ratios. SEB's capital adequacy ratio is 20.18%, well above the regulatory capital adequacy requirements. The liquidity ratio is 195.08%. As SEB Latvia is a systemically important component of the Latvian economy, it is important for the Bank to provide a greater safety cushion for depositors and borrowers in times of uncertainty.
Ieva Tetere, Chairwoman of the Board of SEB banka: “The past year has been one of uncertainty and has presented SEB banka and society as a whole with ever-new challenges. On a positive note, however, customers have generally remained active and are looking for new solutions and development opportunities. SEB Group Latvia is optimistic about the future and will continue its growth-oriented activities. Therefore, this year we have made investments in our technological development and job creation one of our priorities. For example, this year we plan to hire more than 170 technology and business development specialists in SEB banks in the Baltics and in SEB Group's service centres in Riga and Vilnius to improve digital solutions and develop new digital solutions for SEB's customers and improve our services."
The past year was also marked by geopolitical developments and the Russian-led war in Ukraine. SEB Latvia donated around EUR 200,000 in 2022 to support the Ukrainian people. We also created additional opportunities for our employees to support the people of Ukraine through donations and volunteering by offering a number of paid leave days for volunteers. Recognising that the war in Ukraine is also affecting the financial circumstances of the Latvian people, including SEB Latvia employees, additional funds were allocated to help SEB Group employees cope with the energy crisis by paying a one-off bonus to compensate for increased energy prices.
Private individuals have increased their savings and are managing their liabilities responsibly
Overall, SEB Group Latvia's customer activity increased last year, as evidenced by both additional savings and an increase in the total number of transactions, which rose by 20% last year.
Despite the unstable economic situation, the total volume of retail deposits in SEB Latvia's accounts increased by 4.4% to approximately EUR 2.5 billion last year. The total portfolio of consumer and housing loans also increased, with the growth of +26% and +5% respectively compared to 2021. The volume of loans issued to private individuals for the purchase or renovation of houses remained at the previous year's level of EUR 177 million.
Businesses seek a balance between implementing sustainable solutions and overcoming challenges
Increasingly more Latvian business customers of SEB Group are seeking new and innovative solutions to streamline their operations and develop their business in the long term. The rise in commodity prices has also led to additional investments in renewable energy, especially solar cells, more efficient production facilities, shorter supply chains, and higher value creation.
Small and medium-sized enterprises segment
Companies have shown interest in receiving additional financing, both to recover more quickly from the effects of the Covid 19 pandemic and to mitigate the impact of the geopolitical situation on commodity and energy prices. As a result, the volume of loans extended to small and medium-sized enterprises increased by 35% to EUR 256 million. An increase has been observed in leasing, short-term and long-term financing.
In 2022, SEB Group Latvia's loans for long-term investments in the SME segment totalled EUR 117 million. most of this financing is expected to gradually flow into the economy during this year due to supply disruptions and rising construction costs.
Large companies segment
In 2022, financing issued by SEB Group in Latvia to the large companies segment reached EUR 500 million, up 7% year-on-year.
High inflation and rising energy prices meant that a significant part of the financing for large corporates went directly into working capital financing, which meant that they were less able to put funds into new investments and capacity expansions. Challenges also arose from the European Union's sanctions against Russia, which caused some large companies to take additional control measures and reconsider further cooperation with existing counterparties.
In the commercial real estate segment, SEB Group lent over EUR 100 million in Latvia last year, including for the development of several new projects, such as the "Verde" and "Gustavs" office complexes. However, fewer new development projects are expected to come to the market in 2023, as tenants are not yet willing to pay rents at a level that would allow a developer to earn a reasonable return at current construction costs. At the same time, we expect demand for energy-efficient commercial properties to increase this year, which would mean lower service charges for tenants. Energy-efficient property owners, on the other hand, will try to maintain occupancy by possibly lowering rents for certain properties.
A turbulent time in the financial markets
As interest rates rose rapidly in 2022, interest in long-term interest rate transactions declined. During this time, stock market transactions virtually ceased due to the recession, and interest in buying shares declined. However, investor interest in less risky bonds with higher interest rates increased again towards the end of last year, despite the negative impact of rising interest rates.
In the foreign exchange market, the abolition of the Belarusian and Russian roubles led to a significant increase in customer transactions in US dollars (+18%), Swedish krona (+18%), Norwegian krona (+33%), and Polish zloty (+55%). Record high inflation boosted the value of Latvian companies' imports and exports.
Key financial performance indicators of SEB Group Latvia for 2022:
- SEB Group's revenue in Latvia reached EUR 134.7 million, up 25% from 2021 (before the impact from the sale of subsidiaries);
- Profit before provisions amounted to EUR 79.3 million, up 41% from 2021 (before the impact of the sale of subsidiaries);
- Operating profit after tax and provisions for the first 12 months of 2022 was EUR 80.4 million, up 29% from a year ago (before the impact of the sale of subsidiaries);
- Costs for the 12 months totalled EUR 55.4 million, up 9% from a year ago (before the impact of the sale of subsidiaries);
- Provisions for expected credit losses for the period 1 January-31 December were reduced by EUR 3.2 million;
- Deposits with SEB banka totalled EUR 4.4 billion at 31 December 2022, up 11% from the end of December 2021;
- Loan portfolio totalled EUR 3.2 billion at end-December 2022, up 6.5% from the end of December 2021;
- At the end of December 2022, SEB Group Latvia had assets worth EUR 5.5 billion, and SEB Group Latvia had equity of EUR 506 million, up 20% and 6%, respectively, from 31 December last year.
- At the beginning of 2022, a single insurance and long-term savings group in the Baltics was established, as a result of which SEB Life and Pension Baltic SE became the sole shareholder of AS “SEB atklātais pensiju fonds” and IPAS SEB Investment Management, acquiring the shares from the previous shareholder AS “SEB banka”. Including the impact of the sale of SEB Group's subsidiaries as a result of the reorganisation, SEB Group Latvia's total revenue in 2022 was EUR 148.8 million, and its operating profit after tax and provisions was EUR 94.4 million;
- On 8 October 2022, the factoring portfolio of SIA “SEB līzings” was transferred to the parent company AS “SEB banka”.