Located in Northern Europe, Latvia is one of the Baltic States and a memberof the European Union since 2004.
Latvia is a developed country with high-income economy.Main industries of Latvian economy are processed foods and wood products, textiles, processed metals, pharmaceuticals, railroad cars, and synthetic fibers.
Latvia banking and financial system has been developing rapidly since 1991when Latvia declared its independence from the Soviet Union.Latvian banking sector is relatively small, highly concentrated,with high share of foreign capital. Most of the foreign-controlled banks are originated from Scandinavian countries (Denmark, Finland, Norway and Sweden); most of the domestic banks are privately owned. The majority of Latvian banks operate as universal banks, however there are also specialized banks, focused solely on wealth management or corporate banking. More than a half banks in Latvia provide their products and services to non-residents (offshore banking).
|Population (2016)||1 968 957 (-0.01%)|
|EU Status||member since 2004|
|National Currency||EUR (Euro) since 1 January 2014|
|Nominal GDP (2015)||24.4 bln EUR (+0.01%)|
|Nominal GDP per Capita (2015)||12 300 EUR (+0.02%)|
|Real GDP Growth (2015)||2.7 % (2014: 2.4 %)|
|CPI, MoM (Dec 2016)||0.6 % (Nov 2016: 0.1 %)|
|CPI, YoY (Dec 2016)||2.1 % (Nov 2016: 1.2 %)|
|CPI, Year Average (2016)||0.1 % (2015: 0.2 %)|
|Unemployment Rate (2015)||9.9 % (2014: 10.8 %)|
|Government Bond Yield (Dec 2016)||0.90 % (Nov 2016: 0.56 %)|
|Credit Ratings (as of Sep 2016)|
|Fitch||A-||high credit quality, outlook stable|
|Moody's||A3||upper medium grade, outlook stable|
|S&P||A-||upper medium grade|
|Withholding Tax||0.0 - 10.0%|
|Double Taxation Agreements||57 signed agreements|
|Exchange on Request||2 signed agreements|
|Automatic Exchange||starts in September 2017|
|FATCA||IGA in effect since 27 June 2014, Model 1|
|Financial Market Development||4.2 (max 7.0)||rank: 52nd out of 138 countries|
|Banks' Soundness||4.8 (max 7.0)||rank: 69th out of 138 countries|
|Banking Industry Country Risk||8||(1 - lowest risk, 10 - highest risk)|
|Deposit Guarantee Scheme|
|Maximum Protected Amount||100 000 EUR|
|Country Ceiling for Deposits|
|Local Currency (Euro)||Aaa||prime|
|Deposit Rates (Nov 2016, EUR)||0.33 % (Oct 2016: 0.37 %)|
|Banking Sector Structure|
|Number of Banks||58|
|Recent Changes (2016)||new banks: 0, closed banks: 4|
|Consolidated Assets (2015)||32 217.47 mln EUR (+4.03%)|
|ABLV Bank||DNB banka|
|SEB banka||Citadele banka|
|List of Banks in Latvia|
Latvia joined the Euro Area on 1 January 2014. The preceding national currency, Latvian lat (LVL), was replaced by Euro.
According to Eurostat, nominal GDP of Latvia in 2015 was 24.4 bln EUR.
Latvia outperforms the European Union in terms of real GDP growth with the average annual differential coming to 2.1% over the past 10 years (2005 - 2015). In 2015 real GDP growth was 2.7% which was above the Euro Area average (1.6%) and above the European Union average (1.9%). Real GDP growth in 2016 - 2021 are IMF's estimates.
In 2015, nominal GDP per capita in Latvia was 12 300 EUR.
Latvia has a below-average level of wealth in terms of per-capita GDP at purchasing power parity (PPP); this economic welfare indicator has, on average, fell behind that of the European Union by -28.6% over the past 10 years (2005 - 2015). GDP per capita at PPP in 2016 - 2021 are IMF's estimates.
According to Eurostat, inflation rate in Latvia in 2016 expressed as annual percentages of average consumer prices was 0.1% which was below the Euro Area average (0.2%) and below the European Union average (0.3%). Inflation rates in 2017 - 2021 are IMF's estimates.
Withholding taxes are imposed at source of income and are often applied to dividends, interest, royalties, rent and similar payments. The rates of withholding tax are often reduced by double taxation agreements.
Withholding tax rates applied on payments of interest and dividends in Latvia are shown in Table 1.
|Natural person, resident||10.0||10.0|
|Natural person, non-resident||10.0||10.0|
Double Taxation Agreement (DTA) is an agreement between two or more countries for the avoidance of double taxation.
Latvia signed DTAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):
There are 3 ways for jusrisdictions to exchange information on tax matters:
Spontaneous exchange of information is provision of information that is forseeably relevant to another party without a request being previously sent.
Tax Information Exchange Agreements (TIEAs) enable exchange of information on request relating to a specific tax investigation, either criminal or civil.
Latvia signed TIEAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):
Automatic information exchange allows jurisdictions to exchange information automatically, without having a specific tax investigation.
Latvia signed the automatic information exchange agreement on 29 October 2014 and committed to start the automatic information exchange in September 2017.
Foreign Account Tax Compliance Act (FATCA) which became law in the United States in March 2010, focuses on reporting made by foreign financial institutions about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. The FATCA-reporting is facilitated by Intergovernmental Agreements (IGAs).
Latvia has FATCA agreement with the U.S. in effect since 27 June 2014 (Intergovernmental Agreement Model 1). Financial institutions operating in Latvia are required to identify U.S. taxpayers by January 1, 2017 and to report the information for 2017 and the subsequent years. The agreement is reciprocal: Latvian financial accounts hold in U.S. financial institutions will be reported to Latvian authorities.
FATCA and European countries
According to World Economic Forum's Global Competitiveness Report 2016-2017, financial market development in Latvia is scored 4.2 out of maximum 7.0 and ranked 52nd out of 138 analysed economies. Soundness of banks is scored 4.8 bringing Latvia into the 69th place, trustworthiness and confidence of financial market is scored 4.8 (37th place).
Banking Industry Country Risk Assessment (BICRA) is a methodology designed by Standard&Poor's "to evaluate and compare global banking systems". A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group 1) to the highest-risk (group 10). The BICRA methodology has two main analytical components: "economic risk" and "industry risk". Each of the components is then further divided into 3 "factors" that result in an economic and industry risk score for each country.
Latvia is included into group '8' with economic risk scored '7' and industry risk scored '8'.
|Credit risk in economy||very high|
|Institutional framework||very high|
|Systemwide funding||very high|
|Government support assessment||supportive|
Deposit Guarantee Schemes compensate certain deposits held by depositors of a bank that becomes unable to meet its obligations.
From a depositor's point of view it is important to know:
All these details about deposit guarantee scheme in Latvia are summarised in Table 3.
|Scheme Participants||all credit institutions operating in Latvia, branches of non-EU banks, branches of Latvian banks abroad|
|Scheme Exemptions||branches of EU-banks (covered by their home countries)|
|Eligible Depositors||natural persons, legal entities|
|Covered Accounts||deposits, current account balance, salary accounts, savings accounts etc.|
|Maximum Protected Amount||100 000 EUR|
|Paid In Currency||EUR|
Table 3. Deposit guarantee scheme in Latvia.
Deposit Guarantee Schemes in Europe
Moody's country ceilings for deposits specify the highest rating that can be assigned to local- or foreign- currency denominated deposit obligations of a bank or other deposit taking institution domiciled within that country.
Local currency (Euro) deposit ceiling for Latvia is set to Aaa (prime), foreign currency deposit ceiling is Aaa (prime).
Currently there are 58 credit institutions operating in Latvia.
Recent structural changes (2013 - 2016) of the banking sector of Latvia are summarised in Table 4.
|Number of Opened Banks||0||1||3||0|
|Number of Closed Banks||1||5||1||4|
Table 4. Recent structural changes in the banking sector of Latvia.
All the credit institutions operating in Latvia can be classified into several categories. Table 5 summarises the number of banks in each category.
|Category||Number of Banks|
|Branches of foreign banks||7|
The list of the most recently opened banks in Latvia is provided in Table 6.
There are 7 branches of foreign banks from 4 different countries in Latvia. Table 7 shows the number of branches grouped by the country of origin.
|Country of Origin||Number of Branches|