LHV

Will the increased loan and deposit volumes affect LHV's capital adequacy ratios or liquidity ratios?

Created August 12, 2025 at 05:02 AM

Impact on ratios – The month‑on‑month loan growth (+ €33 m to €5.03 bn) adds roughly €30 m of new risk‑weighted assets (RWA) to the balance sheet. In the short term this dilutes the capital‑to‑risk‑weighted‑assets ratio (CET1) unless the increase is offset by higher retained earnings, a capital raise, or a proportional rise in Tier‑1 capital. The deposit surge (+ €260 m to €7.62 bn) is much larger on a relative basis and directly bolsters the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), as the additional high‑quality, non‑interest‑bearing funding reduces the need for short‑term borrowing. Overall, the net effect is likely neutral to slightly positive for liquidity (more cash‑like assets), but a modest pressure on capital adequacy unless the bank’s profit margin on the new loans is high enough to generate sufficient earnings to offset the RWA increase.

Trading implications – The market has already priced the growth positively (sentiment ≈ 60), so the stock may already reflect a modestly higher valuation. However, capital‑ratio concerns can create volatility around any upcoming regulatory filing or quarterly capital‑ratio disclosure. Investors should monitor LHV’s upcoming Q2‑2025 CET1 and LCR figures: a stable or improving ratio will support the current bullish bias, while a dip below regulatory thresholds could trigger a short‑term sell‑off. A prudent approach is to maintain a “hold‑on‑to‑earnings” position, with a watch‑list trigger if the CET1 ratio falls below the 12‑13 % threshold or if the LCR dips below 100 %. If the bank publishes strong earnings or a capital‑strengthening announcement (e.g., share‑buy‑back, capital raise), a long‑position could be justified; otherwise, stay cautious and watch the next regulatory release for a decisive trigger.

Other Questions About This News

How will the month-on-month loan portfolio increase affect LHV's earnings per share and net interest margin? What is the composition of the new EUR 33 million loan growth – are there higher‑risk segments or higher-yield products involved? Is the €260 million deposit growth driven by new retail customers, corporate deposits, or higher‑interest rates attracting more funds? How does the deposit growth compare to the sector average and what does it imply for LHV's funding cost? What is the net impact on LHV's net interest income and net interest spread given the loan and deposit changes? What does the increase in assets under management (AUM) to €1.60 billion indicate about fee income and future revenue streams? Are the €6.8 million payments to financial intermediaries a one‑off or part of a new partnership strategy? How does the July performance compare to the same month last year and to LHV's internal forecasts? What guidance or outlook is management providing for the next quarters based on this growth? What is the market's reaction to a sentiment score of 60 – is it reflecting optimism, and how might that affect the stock price? How does LHV's growth in loan, deposit, and AUM metrics compare with its main competitors in the Baltic region? Are there any regulatory or macro‑economic factors (e.g., ECB rates, Baltic economic data) that could influence the sustainability of this growth? What is the expected impact on dividend policy or share buy‑back plans given the improved financial metrics? Is there any indication that the loan growth is concentrated in particular sectors that might pose credit risk?