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Latvia’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

Compared to 2019, due to the ongoing situation regarding Covid-19, the economic growth, opposite to previous years, slowed down and Gross Domestic Product (GDP) decreased by 3.6%, which has been the largest decrease in the past 10 years. In 2020, GDP in Latvia at current prices amounted to €29.3 billion.

The international credit rating agency S&P Global Ratings (S&P) affirmed Latvia’s credit rating at the current high A+ level with a stable outlook. S&P pointed out that the strong credit fundamentals and fiscal policy, along with monetary policy support from the EU, will allow Latvia to withstand the ongoing wave of Covid-19 and put net general government debt on a declining path starting in 2022.

In 2020, 16 banks were operating in Latvia, including 13 credit institutions registered in Latvia, and three branches of credit institutions registered elsewhere in the EU. The Latvian banking sector is dominated by Nordic banking groups.

Latvian banks lead in digital advancements. Latvia was the first in the euro area to use SCT Inst payments – innovative, modern, lightning-fast bank transfers, which are available at any time of the day, including weekends and holidays. Instant payments have become available around 90% of banks customers and have become a standard payment method rather than an exclusive service and make up 44.4% of all SEPA payments between banks who have implemented instant payments.

An innovative service – Proxy Registry “Instant Links” – is also available, which provides the possibility to make payments, indicating only the beneficiary’s mobile phone number, without the account number. The number of participants in Instant Links has increased 13 times in 2020, compared to 2019, while the transferred amounts for this service increased 215 times.

Contactless payments are preferred by the customers of banks in Latvia which make up 69% out of all payments made by bank-issued cards.

At the end of 2020, banks had attracted €20.5 billion in deposits, which is 10.1% more than at the end of 2019. Among them, the amount of domestic customer deposits increased by 19.1% compared to the end of 2019. Deposits of domestic households increased by 12.8%, while deposits of domestic non-financial corporations increased by 17.4%.

Concluding 2020, the total loan portfolio of the banking sector increased by 1.7% compared to 2019. The number of loans issued to domestic customers at the end of 2020 increased by 1.9% compared to the previous year. Loans to domestic households increased by 0.5%, while loans to domestic non-financial corporations decreased by 5.5% comparing to 2019.

In the first half of 2020, the share of non-performing loans was 4.7%, unlikely to pay 2.4%, > 90 overdue – 2.3%.

Total assets of banks have increased by 8.4% compared to 2019 and amount to €24.3 billion in 2020. It is the largest value in the last three-year period. However, the return on capital remained at a higher level than overall in the EU (5.2%; EU average – 2.0%), while return on equity was 5.4% (EU average – 2.5.%) as well as CET1 capital ratio was 24.5% (EU average – 15.4%). The total profit of banks in Latvia in 2020 increased by 80.5% making €151.543 million compared to the results of 2019.

The Latvian banking sector is stable, resilient, and well-capitalized. It is committed to embedding a culture of compliance while developing products and services that support the economy being shaped by environmental, social as well as governance challenges.

Banking sector is secured with the necessary preconditions to work with a clear awareness of the specific risks in Latvia. Reforms that have taken place since 2018 has resulted in one of the most effective financial crime prevention systems. Latvia as first from Moneyval member states successfully implemented all 40 of the Financial Action Task Force recommendations, as well as introduced a public-private partnership (sharing names, not only typologies) and a fully available register of ultimate beneficial owners (with a number of verification mechanisms), following U.S. OFAC sanctions as mandatory by law. The number of non-EU resident deposits in banks has decreased making around 5.2%.

Prohibition for credit institutions and payment institutions to cooperate with high-risk shell companies is in force therefore all accounts in credit institutions of prohibited shell arrangements are either blocked or arrested or closed. Risk-based approach, use of innovative technologies, access to information and public-private partnership are seen as cornerstones in the banking industry.

Contributor: Armands Onzuls