Credit portfolio – check it out

In the business world, a credit portfolio is a set of loans issued by a credit institution that includes other cash operations such as factoring, leasing, credit line, guarantee obligations, etc. For accounting purposes, a loan portfolio is an asset that is classified by degree of credit risk.

Why do I need a loan portfolio?

This is necessary for the bank to be able to manage the loans issued, thus organizing the bank’s cash flow. Analysis and evaluation of loan portfolio quality helps to effectively and efficiently manage loan operations for bank managers. Today, in international banking practice, a loan portfolio is called a set of agreements in the loan category. This package includes both credit transactions, bills of exchange, commercial bank guarantees and other transactions.

How are loan portfolios described?

They can be characterized by two criteria – risk and return. This means that even a large loan portfolio with high interest rates can be risky if many of the lenders have short-term loans (such as credit card loans or credit lines). Conversely, a small loan portfolio can be stable if it consists of solid loans only – but it can be a minus the low yield.

Which banks have the largest loan portfolios?

Recent figures show that Weds Bank ranks first, followed by BES, which is just over half a billion USD. Bank is in third place, and NBD Bank is in fourth place, with its loan portfolio being half that of Weds Bank. In fifth place is Uterea Bank, whose amount is slightly over one billion USD.

Non-bank lenders are not covered. Of course, their loan portfolios are very small compared to banks.

The total loan portfolio decreased by 6.1% in 2014 – this small figure will actually include a whole USD 951.9 million. The portfolio also declined among residents and among resident households, while the portfolio of non-residents increased by a healthy 4.1%.

This is largely due to the decline in the number of market participants. As I know, both Latvian Mortgage and Land Bank and Unicredit Bank terminated my activities. The smaller volume of new loans also contributed to this.

What is total loan portfolio?

Not only the bank, but also the national portfolios. If Latvia had to borrow a lot of money during the crisis to pay its salaries and other payments, then these debts increased its gross debt by up to 40% of GDP. In 2013, Latvia has already repaid two thirds of this debt, which is USD 2.2 billion out of USD 3.5 billion.

However, these debts were repaid as Latvia issued other shares and borrowed in international markets instead of repaying the debt from the budget. The result is that debt is simply refinanced to other debt, which may have even higher interest rates than IMF debt. If the interest rate on debt falls, it will only be because the economy is growing and the amount of debt remains the same.

What is the situation of the Latvian portfolio in the global context?

However, this situation is not unique compared to other countries. There are a couple of countries that are really over-indebted to Latvia, such as the US with up to 100% of GDP, while Greece, which is often heard in financial terms, has over 150% of GDP. Virtually all countries in the world are in debt, and hopefully governments will realize that all the money is not spent at once, but must be accumulated for the next off-white days.