2001年-世界发展银行全球_Financial_Sector_Assessment___Latvia_8页_1mb

Latvia Financial Sector Assessment Summary (December 2001)

Core Content

The Financial Sector Assessment (FSA) report for Latvia, conducted as part of the joint IMF-World Bank Financial Sector Assessment Program (FSAP), provides an overview of the financial system's structure, legal and supervisory framework, macroeconomic environment, and key vulnerabilities. The assessment was carried out in two phases: an initial mission in February 2001 and a follow-up mission in October 2001, preceding the IMF's Article IV consultation.

Main Findings

• Financial Sector Structure:

  • The financial system is small, with total assets of about 3.1 billion LVL at end-September 2001.
  • The banking sector is the largest component and has been strengthened by foreign strategic investors.
  • There are 20 banks, with more than half engaged in non-resident business.
  • Non-bank financial institutions are emerging, particularly in insurance and pension funds, and leasing is growing rapidly, serving SMEs well.
  • The securities market remains small due to low issuance and limited institutional demand.

• Macro-Economic Conditions:

  • The economy has recovered from the Russian crisis, with strong GDP growth and low inflation.
  • The current account deficit remains high at 7% of GDP in 2000.
  • Credit expansion has been rapid, raising concerns about potential credit quality deterioration.
  • Banks are competing aggressively, leading to margin pressure and possible riskier lending practices.

• Legal and Supervisory Framework:

  • Latvia has made significant progress in establishing a legal framework aligned with EU and OECD standards.
  • The supervisory system was restructured in July 2001, creating the Financial and Capital Market Commission (FCMC) to unify oversight of banks, insurance, and securities.
  • The transition to the FCMC was smooth, with emphasis on change management, internal organization, and relationship-building with the Bank of Latvia (BoL).
  • The FCMC is seen as a credible institution, with adequate supervision in banking, insurance, and securities markets.

• Financial Sector Solvency:

  • Banks have returned to profitability, with a return on equity of 16% at end-September 2001.
  • Banks are well capitalized and liquid, with a liquidity ratio of 30% and an average risk-weighted capital adequacy ratio of 15%.
  • Non-performing loans are low, and provisions are adequate.
  • Stress tests indicate that the top eight banks can withstand interest rate increases or currency fluctuations without compromising solvency.
  • The insurance sector also appears stable under similar stress scenarios.

Developmental Issues

• Pension Reform:

  • The government has reformed the pension system, introducing a fully-funded defined-contribution plan (second tier) as of July 1, 2001.
  • This reform may help develop domestic bond and equity markets but requires appropriate financial instruments and regulation.
  • The FCMC is preparing for the licensing and supervision of second-tier pension funds.

• Capital Markets:

  • The capital market remains underdeveloped due to limited institutional investor capacity and lack of quality securities.
  • Mutual funds are small and focused on money markets.
  • The stock market could benefit from increased privatization and better investor education.

• Corporate Governance:

  • The legal framework for corporate governance has improved, incorporating EU Directives and OECD Guidelines.
  • Clarification is needed on the roles and responsibilities of supervisory board members.
  • Accounting standards are strong, and audit practices are being aligned with international standards.

• Access to Credit:

  • Credit access has expanded, particularly for SMEs and households.
  • However, small businesses, low-income households, and farmers still face limitations.
  • Mortgage lending is growing, with projections of reaching LVL 180–300 million in the next few years.
  • Leasing and factoring are new financial services that are beneficial to SMEs.

Policy Agenda

Priority Policies

• Establishment of FCMC:
  • Ensure credibility through effective communication, staff support, and transition of deposit insurance.
  • Implement a change management program, including hiring human relations experts and forming joint teams.
  • Finalize internal procedural rules, sign-off procedures, and job descriptions.
  • Strengthen accountability by appointing members of the Consultative Council and defining its mechanisms.
  • Legal amendments are being considered to enhance independence and harmonize legislation.

Short to Medium Term Policies

• Change Management and Internal Organization:

  • Implement the change management program and finalize internal organization of FCMC.
  • Sign Memoranda of Understanding with the BoL and Ministry of Finance (except for the latter, which the authorities believe is already covered by existing law).

• Legal Protection:

  • Provide indemnity for supervisory staff acting in good faith.
  • Train and appoint additional judges, improve court infrastructure and security.
  • Transform court bailiffs into an independent legal profession.

• Monetary Policy:

  • Reduce the long-term swap facility of the BoL to eventually eliminate it, given its impact on reserves and the growth of long-term financial instruments.

• Payment Systems:

  • Publicly disclose the BoL's payment system roles and policies.
  • Amend laws to address legal uncertainty in settlement finality, aligning with CPSS Core Principles.

• Money Laundering:

  • Strengthen enforcement of anti-money laundering laws.
  • Increase fines for non-reporting of suspicious transactions and expand the scope to include terrorist financing.

• Securities Markets:

  • Criminalize insider trading and market manipulation.
  • Adjust fines to include mandatory disgorgement of profits.
  • Disclose legal insider trading to the market.

• Non-Life Insurance:

  • Conduct an actuarial review of technical provisions for non-life insurance.

• Pension Reform:

  • Prepare the FCMC for the supervision of private pension funds.

• Corporate Governance:

  • Ensure sufficient funding to increase enterprise re-registration in the Enterprise Register.

Issues for Close Watch or Longer Term

• Current Account Deficit:

  • Monitor developments in the current account, especially in light of potential global economic slowdowns.

• Bank Lending:

  • Watch for signs of imprudent lending as credit growth continues.

• Leasing Companies:

  • Monitor the development of independent leasing companies.

• Insurance Sector:

  • Investigate allegations of reinsurance being used for tax evasion.
  • Study insurance practices using data from insurance companies.

Follow-Up Activities

• The authorities requested technical assistance (TA) from the World Bank to implement FSAP recommendations.
• The Bank has provided TA in three areas:
  • Improvement of corporate governance in insurance companies and other financial intermediaries.
  • Establishment of a register for securities transactions by corporate insiders.
  • Study on improving Latvia's debt management through the securitization of World Bank credit lines.