Igor Buimister, Forbes, 2012.04.

We have discussed earlier that the previous year in Russia was marked by a tendency of retreat of foreign banks. At least ten foreign banks withdrew from the financial market of our big neighbor. Fierce competition delivered by Russian public banks has strangled iridescent hopes of some of the financial structures which were a little late entering the Russian market at the right time. Experts do acknowledge that with “foreigners” leaving, Russia is missing out on the opportunity to improve the quality of financial services and cut their costs. At the same time, Latvia can boast that the number of banks in the country is constantly growing. This tendency is not a random occasion: it shows that our market has not exhausted all of its potential. It also provides a stimulus for further growth of the domestic financial services sector.

A new player – Rigensis Bank – joined our market last year. Other changes: LTB Bank and Latvijas Biznesa Banka (today a branch of Eesti Krediidipank) changed owners. What implications does the arrival of new players have for the market? I believe that the infusion of “fresh blood” into the Latvian financial system will only make it stronger and, yes, there is room for everybody here. This is exactly what the paradox of the market is: the compact size of the local market has become a stimulus for development of the banking sector by way of exporting financial services to other countries. And we see all the signs that the potential of the region is far from being exhausted.   

The number of banks in small Latvia has been growing steadily since 2000. Today, 28 banks here carry out full-fledged operations. Several larger players have divided among themselves a small local retail banking market; meanwhile, others work successfully in the private banking sector where they provide services to foreign clients. This is where the main potential is. It is not a mere coincidence that the share of financial services rendered to non-residents over past years comprised one third of Latvian exported services. At that, the leading position of the Latvian private banking sector in the Baltic region is obvious: according to the research of KMPG Baltics, 70% of all deposits placed by non-residents in banks in the Baltics are allocated in Latvia.

What’s next? Will Latvia manage to have Riga included in the list of major financial centers of Europe? We are certainly moving in this direction, one small step at a time. The high level of expertise of specialists in the banking sector and a vast experience in providing services to clients from CIS are valuable assets in achieving the goal. Players representing this region continue to enter our market, which is a direct proof of lasting interest towards Latvia. It is quite clear that new banks do not seek to entice “old customers” from existing local banks. Instead, they will bring new non-resident clients who are interested in high-quality financial services, and it means an increase in added value for the entire Latvian banking sector. As a rule, private banking clients are quite loyal to their bank and shifting from one bank to another is not what one can see often in this sector. Regardless, new players entering the market add some stimulus to the process of finessing bank services, which eventually has a positive impact on the market as a whole.

As to the potential of development for the financial market in Latvia, we can speak about substantial growth. The banking sector in Latvia today is measured in hundreds of millions: at the end of 2011 the local banks were managing assets in the amount of 963 million euros. If CIS remains the major outlet market for financial services, then we can talk about an increase up to dozens of billions. But if Riga can become a global financial center, increase its market share in Europe, and occupy a certain niche in the market of China and other countries of Far East and Middle East, we can rightfully talk about boosting this indicator to hundreds of billions of euros. For the sake of comparison: the banking sector of small Switzerland at the beginning of 2011 had in its management 4.4 trillions of euros...

What will help Riga to become a financial center of Europe? By all means, fostering of good-neighborly relations with Russia and active representation of Latvia in Eastern countries which today have a quite vague idea about our region. Stability in the macroeconomic environment and in legislation is of equal importance. The regulations securing privileges to foreign investors should not be changed. For example, regular attempts of some political groups to “tighten screws” in the law on obtaining residence permit in Latvia hardly facilitate stability and are nerve-wracking both for bankers and for potential clients of Latvian banks. Despite this situation, the aforementioned law passed in 2010 has become one of the most important factors in development of the private banking service in Latvia. Thus, in 2011 alone the scope of assets maintained by Latvian banks has increased by 62%. 

Of course, financial services with high added value, such as asset management, organization of transactions on merging and acquisition of companies, financial concierge service, etc. must continue to grow. These services combined with high quality performance and supported by the state will most definitely ensure furthering of interest towards our region, which means a substantial increase in revenues for the country.