##Capital requirements for LHV decreased

At the end of July Estonian FSA, Finantsinspektsioon, presented to LHV Group and LHV Bank this year’s outcome of Supervisory Review and Evaluation Process (SREP), which sets additional capital requirements for capital adequacy calculation. In comparison with last year there are some changes in composition of capital charges.

According to the decision of FSA LHV Group should on consolidated level keep in additional capital in the amount of 1.01% (last year 1.89%), from which at least 0.37% should be covered by Core Tier 1 capital and at least 0.49% should be covered by Tier 1 capital.

In a council meeting on 18 August the Supervisory Board of LHV Group based on the FSA decision and adding to it internal buffers decided to set total CAD target ratio at 15.06% (previously 16.19%), Tier 1 ratio at 12.29% (previously 13.29%) and Core Tier 1 ratio to 10.61% (previously not set).

Take a closer look at market announcement with target split into components.

LHV’s first half-year profit: EUR 9.9 million

AS LHV Group earned a consolidated profit of EUR 4.9 million in Q2 of 2017. The bank earned a profit of EUR 3.4 million, asset management’s profit amounted to 1.6 million and the Lithuanian business unit Mokilizingas earned EUR 0.2 million. LHV Group's return on equity was 16.4% in Q2.

The group’s profit was EUR 0.2 million lower than in Q1 and equaled the profit earned a year ago in Q2 of 2016. The group’s consolidated loan portfolio grew by EUR 60 million (+11%; +EUR 8 million in Q1) and reached EUR 606 million. The consolidated deposits grew by a record EUR 210 million (+26%; +EUR 22 million in Q4) reaching EUR 1,008 million. During the quarter the volume of funds managed by LHV rose by EUR 14 million (+1%; EUR 46 million in Q4) and reached EUR 1,035 million. In Q2, the cost of the discount of loans was EUR 1.8 million (EUR 0.1 million in Q1), having been impacted by the discount of two clients in the sum of EUR 1.4 million.

AS LHV Group posted a consolidated profit of EUR 9.9 million for the first half-year of 2017. The bank earned a profit of EUR 7.6 million, asset management EUR 2.3 million and the Lithuanian business unit EUR 0.5 million. The half-year profit constitutes an EUR 1.6 million increase from last year

According to Madis Toomsalu, CEO of LHV Group, LHV was moving forward in a solid pace in the second quarter:
"We’re pleased to see, that the number of the bank’s clients grew by around 5,000 during the quarter and the loan portfolio by EUR 59 million. Among the loans, loans to businesses grew the most. Client deposits surpassed EUR 1 billion, that includes the deposits of non-residents. This mainly includes financial technology enterprises, as the provision of services to them is a new business direction for LHV. At the same time, new records were achieved in the clients’ payment activity, card transactions and acquiring.

In the second half of the quarter, the bank submitted the documents required to open a branch in the United Kingdom to the Financial Supervision Authority, made an agreement on the site of the office in London and joined UK Finance. Developments regarding UK have been as expected.

The results of Q2 include loan discounts that are larger than usual. We are still in a strong credit cycle which, while decreasing the credit loss risk on the level of the portfolio, does not preclude a deterioration of solvency by specific clients. As for the budget, the discounts were in an expected amount.

As for other events of Q2, the launch of video identification can be highlighted. In addition to video identification, in order to improve user-friendliness, we adopted the Smart-ID authentication solution, expanded the network of ATMs to Rakvere and Viljandi and developed a chat robot on LHV’s Facebook channel. The new salary payment solution, created in cooperation with the Tax and Customs Board, earnt this year’s innovation award of the Estonian Banking Association.

In order to sustain the growth that exceeds the financial plan, LHV Pank plans to increase their capital by EUR 3 million in July, involving the respective sum from LHV Group. This is the group’s internal transaction and does not impact the group’s own resources.

LHV’s pension funds continued investments related to Estonia. In the first half-year as a whole, pension funds have already made investment decisions related to Estonia amounting to EUR 100 million. As the prices of internationally traded securities are high and the trading volumes of the Tallinn stock exchange are modest, we have started to develop the local capital market ourselves, looking for new investment opportunities. The objective of LHV’s pension funds is to help the local enterprises grow, while we hope to earn a profit for the clients of our pension funds from this growth.

The profit of Mokilizingas in Q2 was EUR 0.2 million. The financing portfolio increased by EUR 0.3 million over the quarter and reached EUR 34 million by the end of the quarter. The portfolio’s credit quality remains stable.

LHV’s outlook for the current year is good. We are aiming for growth in all our business directions. LHV’s strong basic trends are also supported by the Estonian economic situation, which, according to the latest figures, is improving.

The credit market has remained strong, with its characteristic figures being an increase of loan volumes on the market and the low level of debt. There are also signs of the higher pricing of credit and an increase of the number of enterprises involved in debt.

Concluding six-month results, we have surpassed the financial plan published in February 2017 by EUR 1 million and are not currently going to change the estimated profit of EUR 21.8 million. In the medium term, we can grow with the overall market growth, but we also see an opportunity for increasing our market share by offering new and modern financial services. The cornerstone of LHV’s strategy is quality growth."