Using sports terminology, Latvia has a banking system that “punches well above its weight” – that is, a country of barely two million inhabitants has thirteen active and well-capitalised banks, that cater to every market niche. The Latvian banking market has seen consolidation over the past decade, and the number of active market players used to be even higher, with more than twenty banks at various periods in the past.
The total assets of the industry currently are in the range of some 30 billion EUR at the end of the first quarter, with client deposits exceeding 23 billion EUR and a lending portfolio of 16,5 billion EUR. The financing market has expanded somewhat over the last year, but it still has considerable room to grow given that the deposits have, for a long significantly outweighed the lending volume. To put this in perspective, the size of the Latvian economy is only about 40 billion EUR in nominal GDP, and in this context, the banking industry is relatively large and highly profitable.
The retail banking is dominated by four large retail banks, which essentially capture the overwhelming majority of the retail market with the usual online banking, mortgages and card business for all the traditional segments of retail market – from students to state institution employees and companies. All the retail banks are foreign-owned (the largest two – Swedbank and SEB being Swedish). Plus, for the retail segment, there is a considerable choice of fintech service providers who are usually used as secondary options by private individuals and a vast consumer loans market catered to by non-banking players. The retail banking, in general, is characterised by its very modern technology, perhaps due to the fact that the banking system itself is relatively new and did not have to deal with entrenched legacy technology.
For the corporate segment, Rietumu Banka stands out as the most notable market player – it is the largest of the non-retail banks with more than 1.3 billion EUR in assets and client deposits of nearly 900 million EUR. It has a lending portfolio of some 650 million EUR, which is significant for the scale of the Latvian market. Rietumu Banka is essentially designed to be able to service the full range of financial needs that a large corporate player would have – from daily payments and card functionality to sophisticated asset management and trade finance solutions. In addition, it services high-net-worth individuals, who are often shareholders, their families and top-tier executives of the corporate entities that the bank serves.
Of the large banks, Rietumu Banka is the only locally-owned bank and has been successfully on the market since its establishment in 1992, right after Latvia regained its independence. Remarkable, that the bank has weathered all local economic crises and has been profitable every year since its establishment. It stands out with its strategy of focusing on servicing “complex” business operations, which often include trade, manufacturing, large scale and a transactions that involve a number of components at the same time, for example, financing manufacturing expansion in addition to equity release lending and trade finance. All such complex transactions are unique and require in-depth knowledge and experience on the market. In that sense, Rietumu Banka is perhaps the only bank in Latvia that has the capability to execute such complicated business partnerships on a large scale. There are a number of other quality, smaller local banks in Latvia, and they appear to emulate the Rietumu Banka strategy, but none can match the scope, depth or breadth of the service offering.
Rietumu Banka is active in financing local business and is perhaps the only local bank that can compete with its foreign rivals on the scale of lending. Its financing transactions are often in double-digit millions of EUR, which for Latvis is considerable. For example, Rietumu Banka has recently financed a large retail complex “Sāga” in a fast-growing district of Riga, the Latvian capital city, to the total amount of some 60 million EUR, more than 30 million EUR to a company that operates a shopping centre and the most popular cinema multiplex in the very heart of Riga, as well as 40 million EUR to an innovative local producer of pea protein “ASNS Ingredient” and many smaller transactions in renewable, particularly solar energy, and real-estate, both commercial and residential. Rietumu Banka has also gone beyond Latvian borders and has, for example, a real estate development project in Portugal in its lending portfolio.
Overall, the Latvian banking industry serves a comparatively small, but vibrant and local economy, which has pockets of high potential even at a time when the country is experiencing low or no growth for a number of consecutive quarters. The most knowledgeable banks do find business opportunities, particularly in complex transactions, that the traditional retail banking players overlook.
Latvia is having its challenges due to, for example, regional geopolitical tensions and slow or negative demographic growth. Nevertheless, the country does manage to attract new foreign direct investment and its renewable energy sector, technology and services sectors, as well as medicine, logistics, real estate, food production and forestry remain the most promising. The banking industry is geared towards capturing the opportunities of growth primarily in these industries and given that Latvia has always been an open, trading nation, the local banks have adjusted well to managing the risk that comes with the complexities of international exposure.
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