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Friday 23.03.2018 | Name days: Mirdza, Žanete, Žanna

Economic Diary of Latvia. Drowning banks are to save themselves

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvian government has approved a number of legislative initiatives on the last meeting of 2014. All of these initiatives provide the introduction of additional monitoring measures for credit institutions. As a result, if all of these initiatives are approved, the government will no longer provide financial assistance to banks on the brink of bankruptcy.

This new order provides that losses of a bank that has become unstable or insolvent are to be covered by shareholders or large creditors. This will reduce the risk of the necessity to invest money from the state budget into the restoration of solvency of such credit institutions.

«Measures that were carried out to save banks during the crisis proved to be too much of a burden for taxpayers. New rules will protect taxpayers from banks’ problems, because it will be the responsibility of bank shareholders and creditors to cover losses and ensure financial stability. This is important in order to protect society from banking-related disasters,» – explained Finance Minister Janis Reirs.

The proposed drafts suggest that a new independent department needs to be created in the Finance and Capital Market Commission. Specialists of the new department would partake in processes to ensure the restoration of solvency of banks that experience difficulties. Duties of the new structure will include, among other things, the collection of funds from market participants. These funds will be diverted to the Singe Regulating Fund.

The proposed package of regulations is a temporary measure and will remain in force until January 1st, 2016.

Profits grow

Continuing the topic of banks, it is worth noting that profits of Latvian credit institutions has reached nearly EUR 301.1 million in the first eleven months of 2014, which is 14.8% more than there was in the same period of 2013, as reported by the Finance and Capital Market Commission.

The volume of deposits attracted by banks was EUR 21.37 billion at the end of November (+EUR 1.86 billion more than there was at the end of 2013 and EUR 32 million more than there was at the end of October).

At the same time, the general credit portfolio of the banking sector had reached EUR 14.9 billion at the end of November 2014, EUR 694 million less (4.4%) than there was on December 31st, 2013.

«Although the credit portfolio has reduced by a minimal amount in November, future development of crediting in the country is not too optimistic,» – says Bank of Latvia economist Vilnis Purvins.

Geopolitical tension and the lack of certainty regarding exports to Russia and its partners, which is caused by the decline of the Russian rouble, will be the main factors that will limit the restoration of crediting in the amount worth the attention of potential investors, said the expert.

At the end of November, general assets of the banking sector had reached EUR 29.95 billion, which is EUR 758 million more than there was at the end of 2013 and EUR 388 million more than there was at the end of October 2014.

There are a total of 26 banks active in Latvia, including 9 international financial organizations.

How will 2015 turn out?

During a survey organized by DNB Bank, 66% of respondents have said that 2014 had been successful for them. 46% of respondents have also noted that they expect 2015 to turn out successful as well. Only 5% have said this year may turn out less successful than the last.

Authors of this survey emphasize that there has been a rise in the number of optimistic respondents in the past three years.

On the other hand, when asked to provide a general prediction for 2015, 53% of respondents have noted that they expect their income to remain the same, 19% have said their income will grow. Only 11% of respondents believe 2015 will result in lower income for them.

Considering the situation in Ukraine and that the majority of Latvia’s population is concerned about relations with Russia, respondents were also asked to provide their prediction on the development of the situation with internal and external security. 26% of respondents expect external threats to increase in 2015, 41% expect the situation to stay the same and only 8% believe threats will reduce. At the same time, 25% of respondents did not have an opinion on this matter.

When asked to mention internal or external factors that pose a threat to Latvia, residents most often noted economic decline (41%), demographic problems (36%), foreign economic sanctions (34%), poor or unprofessional state management (31%).

Only 3% of respondents are certain Latvia is not in any danger.

Among other risks to Latvia, residents mentioned diseases (43%), stress and fatigue (30%), poverty (28%), road accidents (23%) and crime (21%).

Residence permits: a new offer

Starting from January 1st, 2015, foreigners are offered a new way to receive residence permits in Latvia: by acquiring state bonds with a nominal value of no less than EUR 250,000 and by performing a payment of EUR 25,000 to the state budget.

This is provided by amendments to the Immigration Law that were approved by the Saeima in December 2014 and the amendments to the circulation of state bonds.

According to new regulations, interest-free state bonds will be available only to foreigners.


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