Banks, Financial Services, Latvia

The commission’s representatives indicated that the evaluation of the 12 banks’ new business models has been completed taking into consideration the bank’s future business strategy and future risks. At the same time, the FCMC has approved requirements for each individual bank, including capital and liquidity requirements, as well as individual supervision measures for this year.

“With this decision, the FCMC has closed the period of the banks’ individual supervision and completed the supervisory dialogue with 12 Latvian banks on the new requirements,” the commission said, adding that the Latvian banks’ business models were assessed in line with the European Central Bank’s (ECB) and FCMC methods, or the so-called Supervisory Review and Evaluation Process (SREP). In this process the regulator defined the bank’s individual performance requirements, as well as future tasks, which include provision of information on a more frequent basis and discussions on the implementation of the new business models.

According to the commission’s representatives, the FCMC-led change management in the banking sector has now entered the final stage. The bank’s future performance results will show the new business models’ suitability for the new circumstances and their ability to absorb the impact of the transformation period. During the next one to three years the banks’ performance will be evaluated in the light of the new business situation, identifying the most effective business niches to ensure the profitability and sustainability of the new business models on acceptable risk levels.

“This is an entirely different risk model that has been worked into the banks’ new business models. There is no reason anymore to talk about a free flow of high-risk foreign money in Latvia. The %age of potentially risky foreign deposits and transactions will now be so small there will be no reason to worry about our authorities’ ability to control them properly,” said FCMC head Peters Putnins.

He also indicated that in line with the new risk-reduction approach, the Latvian banking sector is now focusing on attracting clients from the European Union and the European Economic Area, giving up most of their clients outside this economic area.