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

Chart 1. Balance sheet of Latvijas Banka
(assets/liabilities (–); millions of euro)

 

The assets of Latvijas Banka declined by 186 million euro in 2023. The main changes in assets and liabilities were:

  • the balance sheet item "Securities held for monetary policy purposes" decreased by 548 million euro as securities purchased by Latvijas Banka under the public sector purchase programme and the pandemic emergency purchase programme were The value of loans granted to credit institutions by Latvijas Banka in longer-term refinancing operations dropped by 430 million euro as those loans were repaid;
  • cross-border payments meant that liabilities to the ECB for the settlement result in TARGET declined by 2801 million euro;
  • the value of the deposits of credit institutions mounted by 1857 million euro, mainly because credit institutions made increased use of the Eurosystem's deposit facility to make overnight deposits with Latvijas Banka at a pre-set interest rate.

Latvijas Banka finances its operations primarily from the income generated from managing financial investments and from monetary policy operations. Latvijas Banka does not receive any financing from the state budget, but rather it transfers 70% of the profit made during the reporting year to the state budget. In addition, the financial market participants supervised by Latvijas Banka make payments to Latvijas Banka under the laws that govern their operations, and these payments cover directly or indirectly the costs to Latvijas Banka of regulating and supervising the financial market and the operation of participants in it, and of applying resolution and implementing the compensation disbursement schemes.

Against the backdrop of global geopolitical and economic developments that prompted the ECB's Governing Council to raise interest rates decisively to counter inflationary pressures within the euro area, Latvijas Banka closed 2023 with a negative result and a loss of 53.8 million euro in the profit and loss statement. The total financial result was positive at 143.2 million euro, driving Latvijas Banka's capital and reserves to a substantial year-end total of 730.1 million euro.

Chart 2. Profit of Latvijas Banka (millions of euro)

 

The monetary policy decisions taken by the Eurosystem to curb inflation had an adverse effect on Latvijas Banka's financial performance in 2023. Profound uncertainty has engulfed financial markets since the start of 2022, and this has been further compounded by Russia's full-scale invasion of Ukraine. This attack unleashed a particularly harmful shock to the global economy, and the ECB's Governing Council consequently raised its interest rates.

  • the main refinancing operations interest rate rose from 0% in July 2022 to 2.5% at the end of 2022 and 4.5% at the end of 2023;
  • the deposit facility rate rose from –0.5% in July 2022 to 2% at the end of 2022 and 4% at the end of 2023;
  • the interest rate on the marginal lending facility rose from 0.25% in July 2022 to 2.75% at the end of 2022 and 4.75% at the end of 2023.

Rising interest rates meant that expenditures on monetary policy operations and the deposits of governments and other institutions surged powerfully at central banks within the Eurosystem, and Latvijas Banka was no exception to this.

The most significant changes in Latvijas Banka's operational financial results for 2023 were that:

  • net income from monetary policy operations turned downwards and dropped by 102 million euro. This decline happened because the interest expenses on the deposits of Latvian credit institutions climbed to 174 million euro, while the interest expenses on Latvian government deposits also soared and peaked at 45 million euro;
  • securities yields stabilising after their rapid ascent in 2022 reduced the negative result recorded for the revaluation of financial assets and positions to 35 million euro, but the revaluation account surged to 197 million euro, mirroring the jump in the market value of financial investments.
Management and organisation