The Bank of Latvia

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Bank of Latvia

Although economic growth continued in the first months of 2001, the growth rate of the money supply was somewhat slower than in the previous quarter and the first quarter of 2000. The reason for this was a seasonally lower money demand.

In the first quarter, broad money M2X increased by 4.2% (to 1 329.5 million lats; see Chart 8). Growth of 55.1 million lats was recorded for deposits of domestic enterprises and private persons, while currency outside banks decreased slightly (by 1.6 million lats). The increase in broad money was determined only by an increase in the banking system's net domestic assets. The banking system's net foreign assets declined. The 69.0 million lats increase in the banking system's net domestic assets occurred as banks' net credit to the Government decreased (by 31.3 million lats) and loans to domestic enterprises and private persons continued to increase (by 87.0 million lats).

Chart 8

Broad Money

(in millions of lats)

  M2X (broad money)
  Deposits of domestic enterprises and private persons
  Currency outside banks

Due to seasonal factors, broad money decreased in January (by 1.4%), while increasing in February and March (by 2.0% and 3.6%, respectively). The annual growth rate of M2X gradually declined: it was 24.2% in March and 27.9% in December).

M2D, the lats component of broad money, rose at a less rapid pace (by 3.7% in the first quarter). The foreign currency component of M2X increased (by 5.4%). No substantial changes were observed in M1, the most liquid component of M2X. Quasi-money grew by 10.3%.

In the first quarter, the banking sector's profit totalled 8.5 million lats. The largest income item was operating income: interest income on loans (59.9% of total income) and fee and commission income (21.1%). The paid-up share capital of banks increased by 1.4%, amounting to 204.7 million lats at the end of the first quarter. The banking sector's assets (excluding trust assets) grew by 27.3 million lats or 1.0% compared with the previous quarter and by 609.1 million lats or 29.4% compared with the first quarter of 2000.