As the European Central Bank (ECB) raised interest rates, the Bank of Latvia’s expenses for deposits increased significantly last year. Interest expenses on deposits of Latvian credit institutions reached 174 million euros, and on deposits of the Latvian government – 45 million euros.
Taking into account the aforementioned increase in interest expenses, Latvijas Banka ended last year with a loss.
They do not reduce the central bank’s ability to implement an effective monetary policy and do not incur costs to the state.
At the same time, successfully managing the gold and financial investments of the Bank of Latvia, their value was increased by 298 million euros or 5% during the year. As a result, the total capital and reserves of the Bank of Latvia increased by 143 million euros or 24% and reached 730 million euros at the end of the year.
The Bank of Latvia noted that it ended 2023 with better financial results than previously forecast, taking into account global geopolitical and economic developments, under the influence of which the ECB significantly raised interest rates with the aim of limiting inflation in the Eurozone.
Last year, the Bank of Latvia credited 58 million euros to the state budget – the aforementioned 45 million euros as interest on government deposits in the central bank and another 13 million euros in taxes.
Similar financial results are expected for many other central banks, as they are basically related to the performance of the main task of central banks – monetary policy formation and implementation – in conditions where decisive action is needed to slow down rapid price growth.
It is expected that the Bank of Latvia and other central banks will return to profit making in the medium term as the stance of monetary policy changes and interest rates decrease.
Since the resumption of operations in 1992, Latvijas Banka has earned a total of more than 750 million euros and has credited almost 450 million euros to the state budget. At the same time, it should be taken into account that the main task of central banks is the implementation of monetary policy, not profit making.
The Bank of Latvia mentioned the integration of the Financial and Capital Market Commission (FKMC) into the Bank of Latvia among the most important works completed in 2023, contributing to the faster development of several areas and achieving synergy at the level of functions. So, for example, as a result of changes in the management methodology of the Deposit Guarantee Fund, 6 million euros have been earned and the amount of the fund has been increased accordingly. In addition to that, the total number of employees has been reduced by 18% during the four years since the Saeima’s support for the integration of the FCMC into the Bank of Latvia, not only without reducing the amount of work and functions to be performed, but in some areas, such as data management, even significantly increasing it.
“The year 2023 has been productive and productive for Latvijas Banka. The team of Latvijas Banka became even more powerful and stronger, because the FCMC colleagues joined us. A safe and developed financial sector, better access to financial services and an honest customer-friendly banking sector is a direction of activity where a lot has been done and in which we will continue to work. The most important task of the central bank was to implement and control inflation in Latvia and the eurozone. so that a new cycle of economic growth can begin in 2024,” emphasizes Mārtiņš Kazāks, President of the Bank of Latvia.
The Central Bank noted that a series of measures were implemented last year to ensure a fair and customer-friendly financial sector,
including simplifying regulation, instructing banks to eliminate excessive claims and improving the basic account solution. The development of the capital market was also promoted, both by implementing the “10-step program for the development of the Latvian capital market”, and by organizing the Capital Market Forum and gathering the leaders and policy makers of this field in one place.
In the Bank of Latvia, it was noted that since spring, in the Financial Sector Development Council chaired by the Prime Minister, the Bank of Latvia, together with other institutions, resolved issues related to more active lending and achieved simpler refinancing of mortgage loans, conducted an analysis of the availability of financing, ensured the publication of interest rates applied by commercial banks and reduced regulatory obstacles to lending. Work is underway to make recrediting easier for companies as well.
Taking into account geopolitical challenges and strengthening the preparedness of the financial sector for crisis situations, special attention is paid to security issues. The regulation of critical financial services has been developed and, in cooperation with commercial banks, the preservation of their network of ATMs in the regions has been ensured. In order to strengthen the availability of cash, the Bank of Latvia has also prepared and submitted to the Ministry of Finance a relevant draft of amendments to the law, etc.
