In the first quarter of 2020, AS LHV Group earned a total of EUR 7.5 million in consolidated profit. In Q1, the bank earned a net profit of EUR 8.1 million, and asset management recorded a loss of EUR 0.6 million.
LHV Group paid EUR 2.8 million in income tax in Q1. The Group’s return on equity was 14%.
The Q1 net profit of the consolidation group was EUR 2.5 million higher year-on-year, and EUR 1.1 million higher than in Q4 2019.
During the quarter, the Group’s consolidated net loan portfolio increased by EUR 52 million (+3%; + EUR 465 million in Q4 2019), to EUR 1.74 billion. Consolidated deposits increased by EUR 252 million (+9%; + EUR 166 million in Q4), to EUR 2.95 billion. At the same time, the deposits related to payment intermediaries increased by EUR 129 million, deposit platforms added EUR 45 million, and the deposits of regular clients increased by EUR 78 million. The total volume of funds managed by LHV decreased by EUR 30 million over the quarter (-2%; + EUR 46 million in Q4), to EUR 1.34 billion.
Comment by Madis Toomsalu, Managing Director of the LHV Group:
"For LHV, the first three months of the year were active and yielded good results; however, the effects of the coronavirus are only included to a small extent. Due to the sharp decline of the economic environment at the end of the quarter, the outlook for the future has become much more important. Together with the economic results, we will also be publishing an updated financial plan, in which the effects of the emergency situation on the economy and on our activities will be taken into consideration.
From the point of view of the bank, the keywords for Q1 were bringing Apple Pay to the market, abolition of transaction fees for Baltic shares, and record activity in securities brokerage as a result of the volatility of markets. An important event was the financing of state aid measures via government bonds in the amount of EUR 200 million, on which LHV earns no interest. The number of bank clients increased by 14,400. As of today, 90% of the clients that were added by taking over Danske’s loan portfolio have also entered into a client agreement.
Among loans, business loans and home loans grew the most in Q1. Deposits increased broadly. The cost of discounts on loans amounted to EUR 1 million in Q1. At the same time, changes in the economic environment will significantly increase the discounts in Q2. LHV already announced a grace period for its corporate clients in the first half of March; we also began offering grace periods in a simplified manner for private loan products. We will not amend loan agreement terms and conditions during grace periods, and the grace period will be offered to private clients without an agreement fee.
The Q1 loss of Varahaldus was affected by the income tax paid on dividends, with fee and commission income having decreased significantly. The decline of financial markets over the past few months has affected LHV’s actively managed pension funds the least. In terms of managing pension funds, we have thus far been guided by the reasoning that, in the long term, it is most important to maintain capital that provides a good starting position for investing more vigorously at the current price levels of assets. The number of active pension clients increased by more than 1100 during the quarter.
In Q1 we also announced the plan to enter the non-life insurance market, and to create the insurance company AS LHV Kindlustus together with a partner. With this undertaking, we plan to focus on the Estonian market. Clients of the insurance undertaking will consist primarily of the clients of LHV Pank and Euronics, and others to a lesser extent. We have been granted permission to concentrate by the Estonian Competition Authority, and we will proceed with the next steps in order to be active within the insurance sector in a year’s time.
LHV’s capitalisation and liquidity are at a strong level. Compared to the previous financial crisis, the capital levels of European banks have grown twice. LHV is not an exception here, our Tier 1 own funds are at 14%, and total capital adequacy is at 18%. In terms of liquidity, deposits surpass loans by more than twofold. At that, LHV’s liquidity structure is diverse, consisting of the deposits of Estonian clients, financial intermediaries, and deposits raised via several deposit platforms. We are on schedule with the covered bonds project, which will further diversify financing opportunities and decrease costs, and the hope is to issue these at the beginning of summer.
Considering the deteriorated economic environment, in terms of external factors we are most affected by the recovery speed of the economy, national measures for ensuring the financial capacity of companies and private persons, and the decisions of central banks. Our updated financial plan will provide a more detailed overview of our vision for the future."
| Income statement, EUR thousand | Q1-2020 | Q4-2019 | 3 months 2020 | 3 months 2019 |
| Net interest income | 16 324 | 13 270 | 16 323 | 10 945 |
| Net fee and commission income | 6 508 | 6 427 | 6 507 | 6 225 |
| Net gains from financial assets | -389 | 170 | -389 | 178 |
| Other income | 36 | 58 | 36 | -23 |
| Total revenue | 22 478 | 19 925 | 22 477 | 17 324 |
| Staff costs | -5 769 | -5 236 | -5 770 | -4 553 |
| Office rent and expenses | -278 | -277 | -278 | -229 |
| IT expenses | -729 | -861 | -729 | -629 |
| Marketing expenses | -475 | -443 | -475 | -708 |
| Other operating expenses | -3 924 | -4 543 | -3 922 | -2 987 |
| Total operating expenses | -11 176 | -11 361 | -11 174 | -9 105 |
| EBIT | 11 303 | 8 564 | 11 303 | 8 219 |
| Earnings before impairment losses | 11 303 | 8 564 | 11 303 | 8 219 |
| Impairment losses on loans and advances | -1 011 | -1 546 | -1 011 | -951 |
| Income tax | -2 809 | -586 | -2 809 | -2 265 |
| Net profit for the reporting period from continued operations | 7 483 | 6 432 | 7 484 | 5 002 |
| Profit/-loss from discontinued operations | 0 | 0 | 0 | 0 |
| Net profit | 7 483 | 6 432 | 7 484 | 5 002 |
| Profit attributable to non-controlling interest | 404 | 713 | 404 | 312 |
| Profit attributable to share holders of the parent | 7 078 | 5 719 | 7 079 | 4 690 |
| Balance sheet, EUR thousand | Mar 2020 | Dec 2019 | Mar 2019 |
| Cash and cash equivalents | 1 284 182 | 1 271 153 | 764 778 |
| Financial assets | 231 321 | 40 962 | 26 205 |
| Loans granted | 1 746 205 | 1 693 138 | 1 001 963 |
| Loan impairments | -7 296 | -6 104 | -11 216 |
| Receivables from customers | 2 780 | 3 551 | 7 275 |
| Other assets | 30 148 | 29 212 | 29 308 |
| Total assets | 3 287 341 | 3 031 912 | 1 818 313 |
| Demand deposits | 2 357 463 | 2 189 478 | 1 422 738 |
| Term deposits | 595 948 | 511 437 | 144 266 |
| Loans received | 25 687 | 25 647 | 21 638 |
| Loans received and deposits from customers | 2 979 098 | 2 726 562 | 1 588 642 |
| Other liabilities | 26 093 | 24 321 | 22 325 |
| Subordinated loans | 75 000 | 75 000 | 50 900 |
| Total liabilities | 3 080 191 | 2 825 883 | 1 661 866 |
| Equity | 207 150 | 206 028 | 156 447 |
| Minority interest | 4 190 | 5 218 | 3 234 |
| Total liabilities and equity | 3 287 341 | 3 031 912 | 1 818 313 |
To introduce quarterly results and the financial plan LHV is organizing an investor meeting, which this time will be conducted in the form of a webinar via video communication platform Zoom. The virtual investor meeting will take place on 21 April at 9:00 a.m. Presentation will be made in Estonian. Registration is open via the link https://lhvbank.zoom.us/webinar/register/WN_JzDz7iVZQ0eE0grJLBlX_g.
LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank and LHV Varahaldus. LHV employs over 450 people. LHV’s banking services are used by nearly 217,000 clients, and pension funds managed by LHV have nearly 178,000 active clients.
Priit Rum
Communication Manager
Phone: +372 502 0786
Email: priit.rum@lhv.ee
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