In the coming weeks, Latvijas Banka will prepare and submit to the Ministry of Finance a proposal to amend the Deposit Guarantee Law to set a new target for the Deposit Guarantee Fund (DGF): 3% of the total deposits in the credit institutions and credit unions of Latvia. Financial market participants and the Finance Latvia Association were informed about this proposal this week.
It is expected that this step will improve the competitiveness of Latvia's financial sector and the economy. This amendment will cut down the medium- and long-term payments of credit institutions to the DGF, and the maximum threshold that allows to discontinue payments to the DGF will also be set.
The current pay-in level of the DGF amounts to 2.46% of all covered deposits of all of its members (almost EUR 300 million). Latvijas Banka actively invests the DGF funds to earn interest and to increase the value of the Fund. In 2023, the management of DGF funds earned EUR 5.4 million, in 2024 – EUR 8.3 million, and during the first three quarters of 2025 – EUR 4.5 million.
Deposits mostly accumulate in the largest credit institutions that mitigates the risk and the need to pay out the guaranteed deposits from the DGF.
According to the provisional calculations of Latvijas Banka, the 3% DGF target will be achieved in 2027, as the banking sector of Latvia undergoes structural changes. After achieving this target, the payments by credit institutions into the Fund will come down to approximately 0.09% of covered deposits or approximately EUR 9 million per year (currently, DGF members pay an average of EUR 22 million per year). Furthermore, Latvijas Banka has alternative DGF financing mechanisms (for example, additional extraordinary payments or loans from market participants) to protect the interests of depositors, if needed.
In accordance with the Deposit Guarantee Law, any customer of banks or credit unions in Latvia – whether a natural person or a legal entity – is guaranteed a compensation for any type of deposit in any currency of up to EUR 100 000 per bank or credit union (the total amount across all accounts if there are several accounts with the same bank). The state-guaranteed amount covers deposits, current account balances, wage accounts, savings accounts, etc.
The DGF is established to ensure the disbursement of compensation to depositors for deposits made with a participant of the deposit guarantee scheme that have become unavailable, i.e. when the participant of the deposit guarantee scheme is unable to pay out a deposit and its licence is revoked, or when the participant has been declared insolvent by a court, or in any other case in which Latvijas Banka establishes that the deposit taker is unable to pay out the deposit to the depositor and determines that the deposits have become unavailable. The DGF was created and operates pursuant to the Deposit Guarantee Law.
The accumulation and management of the DGF funds, as well as the disbursement of the guaranteed compensation is performed by Latvijas Banka.
The Deposit Guarantee Law lays down that should the DGF lack sufficient funds to pay the guaranteed compensation according to the law, Latvijas Banka may enter into a loan agreement to borrow the missing funds from the deposit taker or from the deposit guarantee fund of another Member State. And finally, if all other borrowing options have been exhausted, the Ministry of Finance shall allocate funds from the state budget to pay the guaranteed compensation.
The assets of the Fund accrue from quarterly payments of deposit takers (i.e. banks and credit unions) that equal a specific percentage of the amount of received deposits, as defined in the Deposit Guarantee Law and adjusted by a risk factor, as well as from the income generated by the management of the DGF assets.
Members of the DGF are deposit takers, i.e. banks established in Latvia (including branches of these banks in the European Union Member States), and, in cases set out in the Deposit Guarantee Law – branches of the EU Member State banks, and branches of foreign banks and credit unions in Latvia.
On a regular basis, Latvijas Banka publishes operational and management reports on the DGF. The 2024 report is available online here.