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Press Release of March 21, 2005

The Council of the Bank of Latvia has resolved to leave unaltered the refinancing rate and the interest rates on bank deposits with the Bank of Latvia and Lombard loans. The minimum reserve requirement also remains unaltered.

The Council of the Bank of Latvia based its decision on the following considerations.

Inflation in the country remained rather high – it can be considered the result of the shock experienced in 2004, and its growth rate is supposed to slow down in the second part of the year. The economic growth is still rapid, with the difference between growth rates in various industries growing. Amounts of loans, in comparison with the end of the previous year, have risen slightly at the beginning of the year, but this rise has primarily occurred on account of granting loans to enterprises. Last year the fiscal situation in the aggregate turned out to be better than initially projected, moreover there is reason to believe that this year the government will likewise make an effort to reduce the budget deficit.

The current interest rates set by the Bank of Latvia are as follows:
–  the refinancing rate – 4.0% per annum;
–  the interest rates on bank deposits with the Bank of Latvia:
            –  2.0% per annum for 7-day deposits,
            –  2.25% per annum for 14-day deposits;

–  the interest rate on Lombard loans:
            – 5.0% per annum for loans with maturity of up to 10 days;
            – 6.0% per annum for loans with maturity from 11 to 20 days,

– 7.0% per annum for loans with maturity of 21 days and more.

The Council of the Bank of Latvia has approved the Bank of Latvia's Annual Report for 2004, as well as made a decision on the appropriation of profit.

The Bank of Latvia's financial statements for 2004 were audited by the Audit Commission consisting of the representatives of the audit company Ernst & Young and the State Audit Office of the Republic of Latvia. The Commission found that these financial statements represent fairly, in all material respects, the financial position of the Bank of Latvia as at 31 December 2004, and the results of its operations and its cash flows for the year ended in conformity with the accounting principles adopted by the Bank of Latvia and the Law "On the Bank of Latvia".

The Bank of Latvia's profit was 3 289 thousand lats in 2004.
It was appropriated in accordance with the Law "On the Bank of Latvia":
- 987 thousand lats to be transferred to the state revenue;
- 2 302 thousand lats to be transferred to the Bank's reserve capital.

The Law "On the Bank of Latvia" stipulates that 15 per cent of the profit for the use of State capital and a part of profit, calculated by applying the tax rate set for residents – at the end of 2004 it was 15 per cent – are to be transferred to the State budget. Hence, 30 per cent of the Bank of Latvia's profit earned during 2004, or 987 thousand lats, is to be transferred to the State budget. The Bank of Latvia's profit remaining after making the above deductions is to be transferred to the reserve capital.

Hence, since 1993, 33.5 million lats of the Bank of Latvia's profit allocations will have been transferred to the State budget.

In 2004, the amount of Bank of Latvia's revenues (and profit, respectively) was significantly affected by the low yield level of foreign debt securities. At the beginning of 2004, the debt securities market experienced historically low interest rates, but the interest rates in the US rose rapidly during a year, resulting in a decrease of debt securities prices in the US and their yields, respectively. Revenues were also effected by the change of the lats peg from the SDR currency basket to the euro. Getting ready for the repeg, it was necessary for the Bank of Latvia to restructure its foreign currency reserves, by mainly dispossessing of the debt securities denominated in British pound sterling, the decrease in the market value of which was previously recognized in the revaluation account.

As the Bank of Latvia's Annual Report contains data that, according to the data release calendar, are to be published on pre-established dates, the full text of the report will become available to the public on 1 April, with the copies to be received at the Bank of Latvia.

The Council of the Bank of Latvia has approved a revised "Regulation for the Register of Debtors". The most significant amendment to the Regulation is the expansion of the range of participants in the Register of Debtors. Namely, in line with the amendments made to the Laws "On Credit Institutions" and "On Insurance Companies and Supervision Thereof", it also comprises bank subsidiaries (leasing and factoring companies) that provide financial services associated with credit risk, as well as insurers who have the right to provide insurance services in the Republic of Latvia. Hence, the Register of Debtors will also contain data on the types of financial obligations related to the core business of the new participants – leasing, factoring and insurance services.

The revised "Regulation for the Register of Debtors" will become effective on September 1, 2005. The Council of the Bank of Latvia has stipulated the following deadlines for entering data into the Register of Debtors:
·           Insurers registered in the Republic of Latvia, branches of Member State and foreign insurers shall enter data on all debtors by November 30, 2005.
·           Banks registered in the Republic of Latvia, subsidiaries of Member State and foreign banks (leasing and factoring companies) shall enter data on all debtors by December 31, 2005.
·          The Regulation also comprises a requirement for the participants of the Register of Debtors to make a special note where data on a debtor–guarantor are entered. Hence the banks registered in the Republic of Latvia and subsidiaries of Member State banks shall check the current information in the Register of Debtors and make corrections on the registered debtors–guarantors with a special note to that effect by December 31, 2005.

The Register of Debtors is an information system, aimed at making the data available to the participants of the Register, Financial and Capital Market Commission and debtors themselves, and it serves as an instrument for disciplining the debtors and an aid for financial service providers in their work with customers. The above information system is maintained by the Bank of Latvia.

Beginning with 2005, the Bank of Latvia publishes a quarterly statistical review on the Register of Debtors information (not specifying data on particular debtors) on its website. For the analysis of loan quality, however, one should use the relevant Financial and Capital Market Commission data instead of those provided by the Register of Debtors.

The Council of the Bank of Latvia has made amendments to the ''Regulation for Issuance and Maintenance of Electronic Money" (taking effect on April 1, 2005) in line with the amendments made to the Law "On Credit Institutions".