Luminor says bank tax harmed its profits

Baltic bank Luminor generated increased pre-tax profits of 51.7 million euros in the fourth quarter of 2023, a 10.7% increase on the same period a year ago period – but said its profits would have been bigger if it didn't have to pay so much in tax.

"Profit for the period was 59.3% lower than the same period last year at 16.4 million [euros] following the introduction of higher taxes in Latvia and Lithuania," the bank said in a summary of its financial performance.

“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.

As with other major banks that have recently reported their financials, year-on-year pre-tax profits grew substantially from EUR 142.4 million in 2022 to EUR 273.2 million in 2023.

"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," the bank said, yet again noting that it has to pay taxes.

"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,” said Vares.

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. Non-performing loans represent just 1.9% of gross lending.

Compared with 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. 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: “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.”


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