Luminor announces 2Q23 results

Luminor announced its 2Q 2023 results, reporting improved business performance and continued strong credit quality with non-performing loans remaining at 1.2% of gross lending.

The second quarter saw limited demand for new loans and a marginal decrease in deposits as customers responded to a prevailing economic environment and higher reference interest rates. Luminor focused on supporting its customers as it continued to execute its strategy. Luminor improved its offering for Retail Banking customers; it increased its mortgage lending year on year, increased term deposit rates, and grew its active customer base. In Corporate Banking, Luminor was once again the leading underwriter of new debt securities offered by Baltic corporate issuers.

The bank improved its net interest income and raised its efficiency, which resulted in an increase in net profits. 

The bank made additional investments in its IT platform and strengthened its organisation - a development it will continue in the coming quarters. Luminor took several further steps to realise its ESG ambitions and was recognised for its work by the Latvian Institute of Corporate Sustainability and Responsibility’s Sustainability Index 2023.

“The time of uncertainty in the national economy continues, and soaring interest rates have also created challenges for individuals and businesses and affected borrowers. However, lending continued to expand even in the face of the Euribor increase, and the bank's lending portfolio in Latvia at the end of the second quarter was 24 million higher than at the end of the previous quarter, reaching EUR 2.97 billion. Our observations also show that customers are managing to meet their monthly loan payments. However, it is particularly important in these difficult economic times not to forget about saving, which is one of the most important prerequisites for financial security. Although last year's rapid inflation and energy price increases had a generally negative impact on savings, we continue to see increased customer interest in term deposits – in the second quarter of this year, the term deposit portfolio among private customers has increased by 20% compared to the first quarter, while the volume of transactions in euro currency has almost doubled,” says Kerli Vares, Head of Luminor in Latvia.

Second quarter net profit was 53.2 million EUR. This improvement of 81%, as compared to the second quarter of 2022, was driven principally by an improvement in net interest income as Luminor grew Loans to customers and reference interest rates increased after years of extraordinary low rates and limited profitability. 

As the bank invested in its IT systems and processes, operating expenses increased by 72%. Luminor incurred a credit loss allowance, as compared to a net reversal last year, and a higher tax expense after Lithuania introduced a temporary bank tax. The bank retained the profit it generated in the quarter. As compared to the second quarter 2022 the bank’s cost to income ratio improved by 7 percentage points to 55.5% and it generated an increased annualised return on equity of 12.8%. 

Luminor’s liquidity and capital positions are strong. At quarter end the bank’s Common Equity, Tier 1 and Total Capital Ratios, including net profit for the period, were 22.9%.
 
“Our priority for 2023 is building our capacity and capabilities, with a focus on improving our customer experience while raising our efficiency. This will ensure we are well set-up to navigate the prevailing macroeconomic environment. We delivered on this in the second quarter by continuing our programme of investment while improving our business performance, and further strengthening our liquidity and capital positions. The long-term outlook for the Baltic region is strong, and we look forward to the year ahead with confidence. Luminor is here to improve the financial health of our customers and our home countries, and to support their growth. In so doing, we will maintain our strong financial standing, exercise prudent risk management, and fulfil our wider obligations,” says Luminor Bank CEO, Peter Bosek.

Luminor’s Q2 2023 interim report in English can be found here.