05 February 2004 16:37
LATVIA: RATINGS FOR BALTIC INTERNATIONAL BANK
Moody's Investors Service assigned B1/Not-Prime long-term and short-term deposit ratings and an E+ financial
strength rating (FSR) to Baltic International Bank. The ratings carry a stable outlook. According to Moody's, the
ratings reflect Baltic International Bank's niche strategy and narrow market position in the already fairly
concentrated Latvian banking market, the inherent fragility of its franchise but also the recognition the bank enjoys
for the quality of its services, especially among categories of high net worth clients in Latvia, Eastern Europe, Russia
and other CIS countries. The ratings also acknowledge the resilience the deposit-driven institution has shown in recent
years, as well as Baltic International Bank's satisfactory financial profile. This includes fairly stable revenues,
a moderate level of operating efficiency that mainly relates to ongoing investments in the bank's franchise, a low
recurring earnings power, a modestly leveraged balance sheet and a good economic capital base. Baltic International Bank
was founded in 1993. As one of the smaller Latvian banks, Baltic International Bank has adopted a private banking
strategy and focuses on an upper-market clientele of affluent individuals, as well as mid-sized corporate customers.
With respect to the substantial investments the bank has undertaken to broaden its product range, enhance its
technological infrastructure and develop its human resources, Moody's noted that it would be important for Baltic
International Bank to demonstrate in its scale-sensitive business that these investments contribute to developing a more
firmly entrenched franchise and, over time, result in better efficiency and satisfactory and sustainable earnings. In
addition, Moody's pointed to the rapid loan growth the bank has experienced and the challenges this could pose for
maintaining the generally sound asset quality in the longer run. To a degree, this concern is mitigated by the
relatively strict criteria the bank applies in terms of assessing the creditworthiness of borrowers, the quality of
collateral and the composition of the loan book. Furthermore, the rating agency added that Baltic International Bank
benefits from a reasonably diversified deposit base, which provides ample funding for its loan portfolio, as well as
good liquidity. However, Moody's also pointed out that, similar to other banks in the region, a high proportion of
Baltic International Bank's deposits have very short tenors and come to a large extent from non-resident customers,
and therefore make the bank inherently more vulnerable to external shocks or a crisis of confidence. Finally,
Moody's cautioned that despite Latvia's economic and political progress, smaller financial institutions that
do not benefit from the support of a larger European banking groups remain vulnerable to heightened levels of
volatility. Baltic International Bank is headquartered in Riga, Latvia. At the end of June 2003, the bank reported total
assets of LVL32.1 million (approx. €49.8 million) and equity of LVL4.9 million (about €7.6 million).
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