Signet Bank continues to strengthen its position in the domestic market and shows stable performance in 2019

2019 was a year of transformation for Signet Bank AS (further – the Bank). Following the decision to adjust its business model, the Bank together with its subsidiaries (further – the Group)  expanded its activities  in the domestic market, focusing on High Net Worth (further – HNW) and affluent individuals and businesses owned by such individuals. During the year the Group has managed to substantially increase business volumes on the local market, increasing the number of clients, volume of deposits and growing its domestic loans portfolio. As a result, the share of business with clients from Latvia, EU and OECD member countries has substantially increased and reached 70% of the deposit base and 67% of the Group’s overall revenue. In 2020, we plan to complete the transformation of our business model.

As before, our core product line is (and will remain) built around servicing the capital of HNWs and affluent individuals, and businesses owned by such individuals, with primary focus on investment management and club deals which syndicate funding for debt and private equity transactions. Our services will continue to focus on bringing together our clients’ available resources and investment opportunities available through capital markets and private lending transactions. We are constantly working on improving existing products of the Group as well as introducing new solutions.

Lending and other financing products have become the most important drivers of future growth of the Group. In 2019 we successfully arranged the first bond issue for our client Sun Finance, raising 10m EUR from private and institutional clients of the Group. We believe that the market offers excellent opportunities for arranging new bond placements, and will be working hard to make this financing product more popular among our existing and potential domestic clients. As financing for local businesses becomes less available from internationally owned banks operating in Latvia, we have more opportunities to attract new clients looking to arrange financing for their businesses and projects. The Group plans to capture these opportunities, so we plan to arrange new financing transactions worth 80m EUR in 2020.

In 2020 we plan to launch the first two mutual funds managed by Signet Asset Management IPAS. These funds will complement portfolio management services currently provided by Signet Asset Management IPAS to private clients and also to the largest 3rd pillar corporate pension fund in Latvia. We also plan to expand our custody service offering and to start servicing institutional clients.

Technological development will be a major priority for the Group in 2020. We plan to invest time and resources in improving clients’ servicing and services usage experience, especially in terms of more convenient remote usage of banking services, as well as in the development of new products and  IT infrastructure overall. We realise that being up to speed with the latest trends in the financial sector where dynamic changes are currently taking place is crucial to further successful development of the Group.

2019 was a key year for restoring the international reputation of the financial sector in Latvia. The coordinated efforts of government, lawmakers, Financial Intelligence Unit, FCMC, law enforcement agencies and financial institutions has led to irreversible de-risking of Latvian banking sector, which now commands AML/CTPF standards fully up-to-date with the international best practice. It is important to note that changes in AML/CTPF culture were accomplished not only in the Latvian banking sector, but in the economy at large and these changes have been recognised by international experts – first the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (further – Moneyval) in January 2020, followed by the FATF in February 2020. Latvia has become the first member state under the supervision of Moneyval to successfully implement all 40 FATF recommendations. This is the best evidence of the progress Latvia made in tackling AML/CTPF issues within a very short period of time. We are convinced that these efforts, and the real progress achieved so far, will lead to restoring the Latvian financial sector’s reputation on the international arena.

With this background, the Group continues to pay great attention to AML/CTPF compliance, constantly enhancing its internal controls in line with the changing regulatory environment and international best practice. We are investing in IT and human resources to maintain risk management and controls consistent with the chosen business model.

Sustainability is becoming an increasingly significant aspect of the financial industry, reflecting the resolution on the Agenda for Sustainable Development adopted by UN General Assembly in 2015. The greatest resonance so far has been caused by the environmental factor, with ambitious goals defined for environmental protection and restoration both globally and nationally. The Bank intends to accentuate sustainable finance as a priority, integrating its three dimensions – environmental, social and governance – into operational strategy, investment decision-making, development of financial instruments, and provision of investment services to clients of the Bank.

In terms of financial performance the Group had a fairly successful year. Net fee income increased in 2019 compared to 2018 by 34% (from 3.4m EUR to 4.6m EUR), while net interest income has increased by 14% (from 3.4m EUR in 2018 to 3.9m EUR in 2019). Administrative expenses have increased slightly (+2% – from 7.1m EUR in 2018 to 7.2m EUR in 2019), but net comprehensive income reached 1.1m EUR (compared to net comprehensive expense of 57 thousand EUR in 2018).

Client deposits increased by 52m EUR (+51%), while the total amount of client funds under the Group management and administration has increased from 624m EUR to 1,093m EUR (+75%).

We see many opportunities as the banking sector of Latvia continues to undergo structural changes. At Group, we see a clear opportunity to grow our private banking and investment banking businesses. Having access to our clients’ substantial capital, we are able not only to arrange loans on our balance sheet, but also to syndicate sizeable debt financing transactions with our clients in the form of both loans and bond issues.

The Group has maintained its conservative risk profile – capital adequacy ratio stood at 23.27% at the end of 2019, with a liquidity ratio of 67.59%. We will continue to put more capital to work, mostly through growing our loan portfolio in the local market.

Events of past few weeks related to the COVID-19 pandemic in the world and declared the state of emergency in Latvia have brought certain disruptions to everyone’s everyday life. The Group continues to offer full range of services to the clients, and our staff is ready to work in fully remote mode if such need arises. Elevated volatility in the financial markets does not have any substantial impact on our proprietary investment portfolio, which is predominantly comprised of high-grade bonds. We hope that this pandemic subsides very soon, and wish to all of our clients and partners to stay safe and sound in the meantime.

Management of the Group is satisfied with the results achieved in 2019, and is confident that last year’s hard work has laid the necessary groundwork for achieving more in the coming years. We believe the Group has an excellent proposition for existing and potential clients, and are full of energy and commitment to realise its vast potential for growing turnover and revenues.

We would like to thank our clients for their continuous trust, our shareholders for their support and strategic guidance, and our employees for their hard work in these exciting times.