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Latvia’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

2018 was a year of a continued economic growth in Latvia, with 4.8% GDP growth, the highest since 2011.

In 2018 there were 20 banks operating in Latvia, including 15 credit institutions registered in Latvia, and five branches of banks registered elsewhere in the EU. The Latvian banking sector is dominated by Nordic banking groups, holding 60% of shareholder capital. In January 2019, Luminor Bank began its operations, concluding the merger of Nordea and DNB in the Baltics. Registered in Estonia, it since continues branch operations in Latvia and Lithuania.

Banks served 2.09 million customers through digital channels (predominantly), and 204 bank branches and customer service centres. Banks have installed over 40,270 payment card terminals and 2.17 million payment cards have been issued to clients, that is, 1.12 cards per inhabitant. The number of purchases made using payment cards continued to increase as clients made 358.6 million purchases worth €10.9 billion during the year. Banks embrace the new payment methods, mobile payments and wearable technologies, instant payments, too, are increasingly becoming the new default. Latvia is the first country in the Euro area with instant payments available to over 90% of the customers of Latvia’s commercial banks and 24/7/365. More than 900,000 contactless payment cards were in issue in Latvia in Q4 2018, 91% more than in Q4 2017. The number of contactless terminals accepting payment cards reached 27,000 (67% coverage). Banks also provided 990 ATMs with cash withdrawal functions and 369 with cash deposit functions, reflecting a continuing drop in the total number of ATMs (1,015 in 2017).

Total capital of the Latvian banking sector reached €2.9 billion at the end of 2018. It decreased by €0.3 billion or 10% since the beginning of 2018. It was affected by the licence withdrawal of ABLV Bank AS (the European Central Bank decided to withdraw the credit institution’s licence in July 2018). The average return on equity in the banking sector of Eurozone was 5.0% in 2018. Eight Latvian banks exceed the average return on equity of the banking sector.

Total deposits of the Latvian banking sector were €16.3 billion at the end of December 2018. The portfolio declined by €3.9 billion or 19% in 2018. The decrease was mainly observed in deposits of foreign companies; deposits of private persons increased in eight banks. The amount of deposits from Latvia and EU member states has increased, from 65% in 2015 to 90% in December 2018; the volume of payment transactions by foreign customers has decreased, from the high €35 billion in Q4 2015 to less than €10 billion in Q4 2018, according to the Financial and Capital Market Commission (FCMC).

The financial sector contributed to the strong growth of investment.  Between 2015 and 2018, the ability and willingness of businesses to borrow funds has significantly increased, according to the Finance Latvia Association Lending Index of the business segment. During this period, the lending index for businesses has increased twice as fast as it has for individuals, which shows that the global economic upswing has a positive impact on the Latvian economy. Reflecting the economic mood internationally, however, ability to borrow is generally higher than the willingness to borrow for companies as well as individuals.

While eight banks had loan portfolio increases of 3% to 44% in 2018, the total portfolio decreased by €0.9 billion or 6% in 2018. The decrease was mainly observed in the non-resident corporates segment.

The total profit of banks in Latvia in 2018 was €294 million, €58 million or 25% higher compared to the results of 2017. The Latvian banking industry’s return on assets and return on equity were 1.0% and 8.1%, respectively, in June 2018, according to the FCMC.

Latvian banks maintain high capitalisation levels and the total capital adequacy ratio of the banking sector was 22% in June 2018.  The average liquidity coverage ratio in 2018 was 249%. Banks have committed to contributing to the work on sustainable finance, as Finance Latvia joined the UNEP FI Principles for sustainable banking in April 2019.

The Latvian banking sector is stable, resilient and well capitalised. 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.

Contributor: Aivars Graudiņš: