Latvia's Economic Response to Covid-19
Well capitalised and liquid banking sector
The Latvian banking sector entered Covid-19 crisis as well capitalized, liquid and profitable, with a high presence of large
Nordic and Baltic banking groups
Key Highlights
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The Latvian banking sector is dominated by subsidiaries and branches of
banks from the European Economic Area, mostly from Nordic countries
Capitalization and liquidity ratios are well above minimum requirements
Since Latvia is a part of the European Banking Union, three largest banks
are directly supervised by the ECB and are under the remit of the SRB
In the short term negative effects of Covid-19 outbreak on the financial
stability have been mitigated by the government support package for
businesses (incl. loan guarantees and subsidized loans) and households,
private moratoria, ultra-accommodative monetary policy and greater
regulatory flexibility
The ECB and the FCMC have recommended that all banks should consider
not distributing any cash dividends or conducting share buy-backs, or to
limit such distributions, until 30 September 2021.
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Capital Adequacy (%)
2014
2015
2016
2017
2018
2019
2020
Capital Ownership of the Banking System (4Q 2020)
Source: Bank of Latvia
400%
350%
300%
250%
200%
150%
100%
50%
0%
17%
■Domestic
■Nordic
29%
Other
54%
Liquidity Coverage Ratio
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016
2017
Total capital ratio
CET1 ratio
Minimum requirement for total capital ratio (8%)
Average LCR, LV
2018
Average LCR, EU
2019
Minumum requirement
Source: FCMF | Note: Tier 1 ratio matches CET 1 ratio. The Pillar 1 minimum Total capital ratio is 8%.
Since 28 May 2014 the FCMC also applies a 2.5% capital conservation buffer.
Source: FCMC, EBA
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