The Council of Latvijas Banka has approved the Annual Report of Latvijas Banka for 2024. In addition to the financial statements for 2024 and the unqualified independent auditors' report, it provides an overview of the economic environment and economic development in Latvia and the euro area, as well as information on the operation of the national central bank and its accomplishments in the areas within its mandate.
Pursuant to the Law on Latvijas Banka, the financial statements were audited by independent external auditors recommended by the Governing Council of the European Central Bank (ECB) and approved by the Council of the European Union. Latvijas Banka has received a positive auditors' opinion on its financial statements for 2024 from the auditing company SIA ERNST & YOUNG BALTIC.
Latvijas Banka concluded 2024 with financial results that exceeded expectations, despite the negative results of monetary policy operations stemming from the interest rate hikes implemented by the Governing Council of the ECB in previous years to curb inflation in the euro area. Total recognised gains of Latvijas Banka amounted to 214 million euro (143 million euro in 2023), leading to an increase in Latvijas Banka's capital and reserves by 30% (to 944 million euro).
Through effective management of Latvijas Banka's gold and financial investments, their value rose by 399 million euro or 7% over the year, reaching 6.2 billion euro. This performance notably surpassed the increase in the value of the respective investments in 2023 (296 million euro).
Although euro interest rates were significantly reduced since June 2024, the average euro interest rate for the year remained higher than in 2023. This led to a further increase in Latvijas Banka's net monetary policy operation expenses compared to 2023, rising to 158 million euro (140 million euro in 2023). Consequently, interest expenses on deposits by Latvian credit institutions reached 238 million euro (174 million euro in 2023), while those on deposits by the Latvian government – 41 million euro (45 million euro in 2023).
The increase in the market value of financial investments in 2024 (399 million euro) includes 120 million euro in the profit and loss statement, while 279 million euro, in accordance with the accounting principles established by the Eurosystem, is reflected in the total capital and reserves as a revaluation reserve, rather than in the profit and loss statement. Therefore, despite a positive total recognised gains of 214 million euro, the profit and loss statement shows a loss of 65 million euro. In accordance with the Law on Latvijas Banka, the loss is covered by the reserve capital set aside for such situations, ensuring that the central bank's ability to fulfil its responsibilities remains unaffected and without incurring expenses for the state.
Latvijas Banka appropriated 56 million euro to the state budget last year: the aforementioned amount of 41 million euro was appropriated as interest on deposits of the Latvian government and an additional amount of 15 million euro – through taxes.
The majority of the Eurosystem's national central banks have reported negative financial results for 2024 in their profit and loss statements, prior to the use of provisions for financial risks. This pertains to the central bank's primary task – formulating and implementing monetary policy – during a period when a significant rise in interest rates was essential to curb the rapid increase in prices. As interest rates decline, Latvijas Banka and other central banks will also resume recognising profits in their profit and loss statements.
Since the restoration of its operation in 1992, Latvijas Banka overall has earned nearly 700 million euro of which almost 450 million euro were appropriated to the state budget. At the same time, it should be taken into account that the key task of central banks is to implement monetary policy rather than to generate profit.
In 2024, Latvijas Banka actively implemented its strategic priorities. One of these priorities is ensuring a secure and developed financial sector that remains accessible to the public. Inflation was curtailed at the euro area level, enabling a reduction in euro interest rates. Several new participants launched operations in the Latvian financial sector, bolstered by the central bank, while legislation was enacted to guarantee the creation of a comprehensive nationwide ATM network, including critical ATMs, which would be prioritised for cash supply in the event of a crisis or any emergency situation. The capital requirements for commercial real estate lending were reduced. As a result, several credit institutions will see a reduction in their capital requirements, enabling them to accelerate lending in both the commercial real estate sector and other segments.
To support decision-making that benefits the population and drives national economic development, Latvijas Banka developed proposals for amendments to several legal acts. These included reducing commission ceilings to benefit pension savers in the State-Funded Pension Scheme, enhancing insurance services in light of flood experiences, etc. Efforts were made to draft legislation aimed at reducing barriers to loan refinancing for legal persons.
Proposals were developed to reinforce sanctions against Russia and Belarus at the European Union level, reduce administrative burdens, and promote a risk-based approach to enhance anti-money laundering efforts.
The "Financial Literacy Week 2024," the largest of its kind to date, featured 90 events organised in collaboration with partners, engaging over 3500 participants and significantly enhancing their financial skills. Economists from Latvijas Banka published 17 working papers in prestigious international scientific journals, including renowned publications such as "American Economic Journal: Macroeconomics", "Review of World Economics", and 55 articles covering a wide range of contemporary topics in economics, monetary policy, and financial markets.
In line with its priority to position Latvijas Banka as an innovative and efficient institution, 2024 saw the connection of non-bank service providers to the payment system maintained by Latvijas Banka. A regulation on markets in crypto-assets (MiCA) was introduced, providing Latvijas Banka with the legal framework to issue licences to crypto-asset service providers. At the euro area level, significant progress was made on the digital euro project, while in Latvia, the Digital Euro Forum was established to involve relevant institutions and businesses in the exchange of up-to-date information and the development of proposals.
Outlining the work for 2025 and beyond, Mārtiņš Kazāks, Governor of Latvijas Banka, emphasises: "We will persist in our dedicated efforts to serve Latvia's best interests, and in the years to come, we will focus our efforts on three directions. First, a secure and crisis-resilient financial sector and payment systems. The second direction is the accessibility of financial services – more affordable, modern, and tailored financial products for various customer groups and supported by extensive regional coverage; a diverse financial sector ecosystem, underpinned by a developed non-bank sector. The third direction is an innovative, efficient, and technologically advanced central bank. It entails data management aligned with the highest global standards, coupled with the use of artificial intelligence tools."