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Purgaile: the number of banks may decrease in Latvia this year

FKTK, banks, Latvia, liquidity, business, model, change

Santa Purgaile

The number of banks operating in Latvia may become smaller, said Finance and Capital Market Commission (FKTK) chairperson Santa Purgaile said at a meeting of Saeima’s Public Expenditures and Audit Committee on Tuesday, 14 January.

The head of FKTK explained to deputies that there are two groups of banks in Latvia – banks that focus mainly on domestic customers and banks that previously focused on foreign customers but are now in the middle of changing their business model.

«Of the ten banks in the middle of restructuring there are those whose business model change is progressing successfully and they may join the first group in spring. However, there are also banks that have not finished their transformation and their progress is not very good. I cannot say the number of banks we have now will remain the same by the end of the year,» said Purgaile.

She said the main reasons for problems with business model change include the fact that banks do not have a clear future business niche, or there are problems with attraction of additional capital to restart crediting. There are also banks that do not show much interest in rejecting high-risk clients.

When asked how many potentially problematic banks there are in Latvia, Purgaile said there are definitely no more than three.

«In any case, even if these banks suffer problems, their overall influence on society and economy is insignificant. Even in the worst possible scenario the effect on society will be minimal,» explains Purgaile.

She adds the general capital and liquidity indexes for Latvian banks remain high and even some banks of the second group have very high liquidity reserves.

At the same time, Purgaile notes the profitability indexes of the banks of the second group are far behind the indexes of banks from the first group. Nevertheless, capital returns for these banks is sufficient and reaches EU levels.

Purgaile adds that lower profitability can be explained with rejection of high-risk clients, which causes banks to lose revenue.

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