The financial management system of Latvijas Banka has been developed to ensure support to decision making, financial risk management and efficient use of financial resources. Major financial transactions of Latvijas Banka are related to the management of financial assets and the implementation of monetary policy.

Chart 1
Latvijas Banka's balance sheet (assets/liabilities (–); millions of euro)

Assets of Latvijas Banka increased by 2029 million euro in 2021 mostly on account of the following factors:

  • as a result of purchases under the PEPP and PSPP, assets of monetary policy operations grew by 1039 million euro;
  • the creation of new financial investment portfolios and the expansion in the existing ones resulted in an increase of financial investment assets by 785 million euro, including the pickup (by 401 million euro) in the government foreign currencies in the portfolio of borrowed funds.
  • the intra-Eurosystem claims followed an upward path in line with the increase in the overall amount of banknotes in circulation of the euro area NCBs.

Latvijas Banka finances its operation primarily from the income generated from managing financial investments and from monetary policy opera- tions. Latvijas Banka does not receive any financing from the state budget. Instead, it transfers 70% of the profit made during the reporting year to the state budget. In 2021, Latvijas Banka recorded a profit of 20.9 million euro, of which 14.6 million euro are to be transferred to the state budget. Over the last five years, Latvijas Banka's profit totalled 113.2 million euro, of which an amount of 78.0 million euro was transferred to the state budget.

Chart 2
Latvijas Banka's profit and total recognised financial result (millions of euro)

The financial performance of Latvijas Banka in 2021 was mainly affected by the following factors:

  • lower average yields on securities and the costs of hedging currency risks reduced net interest income for the management of financial investment by 8.1 million euro;
  • the rise in interest rates affected the fall in realised gains from financial operations by 44.1 million euro;
  • the pickup in the amount of monetary operations and the application of more favourable conditions to TLTRO III reduced net income on monetary policy operations by 14.1 million euro;
  • expenditure for provisions for financial risks declined by 64.2 million euro;
  • the rise in interest rates affected the reduction by 39.1 million euro in the revaluation account changes.