Latvia’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The 2017 was a year of steady and strong economic growth in Latvia (4.5% GDP), more than double compared to 206 and among the strongest in the European Union. It was marked by resolute continuation efforts started in 2016 to ensure the highest standards in countering money laundering and terrorist financing, to facilitate sustainable development of the Latvian banking sector and to embrace opportunities of new technologies.

In 2017 there were 21 banks operating in Latvia, including 16 credit institutions registered in Latvia, and five branches of banks registered elsewhere in the European Union. The Latvian banking sector is dominated by Nordic banking groups, holding 54% of shareholder capital while other OECD countries represent 34%. A major merger embarked on in 2016 and rolled out in 2017, of Nordea and DNB, combining their operations in Estonia, Latvia and Lithuania is not yet dully represented in 2017 data.

Banks served 2.16 million customers through digital channels (predominantly), as well as 239 bank branches and customer service centres. Banks have installed over 43,307 payment card terminals and issued 2.24 million payment cards while clients made 322.6 million purchases worth €10.6 billion during the year, an increase of 33%. Banks have embraced new technologies. Modernised their ATM networks and continued to foster use of on line payments. It was reflected by a slight drop in the total number of ATMs, providing 1,015 ATMs with withdrawal functions and 356 with cash deposit functions. The move to reduce usage of cash in daily transactions was ongoing as banks’ strategies recognise the growing role of digital payment services solutions. It was well reflected in the dynamics of bank and FinTech cooperation; as well as the “Open Digital Finance Framework” a position adopted by the Association to guide support development of digital ecosystem in Latvia and EU.

Increased new lending to businesses (4%) as well as continued progress (5%) in the household segment demonstrate recovery of investment that supported Latvia’s economic growth. Data however also reflects a continued effect of de-risking and a decrease of total assets of the banks by 3.7%, reaching in total €28.4 billion, equivalent to 106% of the Latvian GDP. During 2017 the amount of deposits at banks dropped by 5.1% (largely driven by reduced foreign client deposits), adding up to €20.3 billion according to the Financial Capital Market Commission (FCMC).

Nevertheless, the banking sector continued to demonstrate healthy profitability and reported a profit of €236 million in 2017. The Latvian banking industry’s return on assets and return on equity are at 0.9% and 7.61% (6.9%, EBA) respectively. The cost to income ratio 59% (FCMC) is strong, compared to EU average.

Latvian banks maintain high capitalisation levels and total capital adequacy ratio of the banking sector was 21%. Higher prudential requirements and relatively high returns have contributed to improvement of capital ratios providing high potential loss absorption capacity.

Overall the Latvian banking sector is stable, resilient, well capitalised and ready to support the expanding ambition of Latvian economy.

Contributor: Linda Austere linda.austere@lka.org.lv