One of the tasks of Latvijas Banka is to enhance the stability of Latvia's financial system.

In 2025, Latvijas Banka:

  • simplified the methodology for identifying O‑SIIs and calculating O-SII capital buffer rates. The revised methodology is more appropriate to the specificities of the Latvian banking sector, simpler and more proportionate from a supervisory perspective;
  • concluded the two-year presidency of the Nordic-Baltic Macroprudential Forum. This forum brings together central banks and supervisory authorities in the region in the financial stability and macro-prudential policy fields;
  • provided advice to the government and other state institutions on issues affecting the regulation of the financial sector;
  • analysed financial stability and raised public awareness of the most pressing topics, with a strong focus on lending and related factors, including sustainability aspects.

Financial stability assessment

Systemic risks1Systemic risk is a risk of disruptions in the financial system with the potential to have significant negative consequences for the discharge of the functions of the financial system as a whole and for the real economy (within a year).

  • The global and domestic impact of persistently high uncertainty and geopolitical fragmentation, which may impair banks' asset quality and profitability:
    • deteriorating economic sentiment;
    • growth inhibition;
    • the possibility of price volatility of financial assets;
    • cyber-attacks and other large-scale unexpected disruptions in financial intermediation;
  • prolonged weak investment environment and insufficient support for investment.

Potential systemic vulnerability

  • Unsustainable development of the housing market, including subdued investment in the renovation of the housing stock (delayed investment will increase costs).
  • Climate change-related and other natural risks, including biodiversity loss (increasing climate and economic resource change will increase the necessary investments in adaptation and mitigation measures; some of the existing business models may no longer be viable).
  • Delayed more substantial increases in the efficiency of public spending. This accumulates a sharp risk of future changes in fiscal policy, including tax policy.

Macroprudential policy

In 2025, Latvijas Banka carried out an annual assessment of the identification of O‑SIIs and the O‑SII capital buffer rates applicable to them and reviewed the methodology for identifying O‑SIIs and calculating O‑SII capital buffer rates. The revised methodology better reflects the specificities of the Latvian banking sector, being simpler and more proportionate from a supervisory perspective. As a result of the simplification of the O‑SII framework, the number of O‑SIIs identified decreased from five to three and the O‑SII capital buffer rates of the two institutions identified as O‑SIIs decreased.

Latvijas Banka conducts quarterly assessments of cyclical systemic risks and compliance with the CCyB rate. Since 30 June 2025, banks have been bound by Latvijas Banka's decision of 18 December 2023 on the 1.0% CCyB rate, including the zero cyclical component of the CCyB set for the cyclical systemic risk assessment.

Cooperation with national and international institutions in the field of financial stability

In 2025, Latvijas Banka provided advice to ministries responsible for the application and methodological aspects of the norms laid down in the Solidarity Contribution Law binding on banks, to the State Revenue Service, the Legal Bureau of the Saeima, and market participants, as well as ensured the provision of the data provided for in the Solidarity Contribution Law to the State Revenue Service.

Latvijas Banka gave its opinion to the Constitutional Court in a case concerning the Law on the Discharge of Obligations of a Natural Person and to the Competition Council on the qualification requirement imposed by a public person in a tender for the provision of deposit services.

Latvijas Banka continued to provide support to the responsible ministries and other institutions involved in order to improve the functioning of pension funds and increase the investment of pension fund members – future pensioners. Reductions in managers' commissions and increased opportunities of fund contributions, including in the most characteristic assets of Latvia, are aimed at increasing the profitability of pension funds in the long-term. The reform of the governance of the state-funded pension system will continue to provide savings to members in the amount of several million euro each year and at the same time motivate fund managers to invest more in financial instruments specific to Latvia.

At the meeting of the Macroprudential Council held in 2025, the management of Latvijas Banka and the Ministry of Finance discussed the most important systemic risks to financial stability, as well as current issues in macroprudential policy.

Cooperation in the area of financial stability continued in various Nordic-Baltic fora. In 2025, the Governor of Latvijas Banka chaired the Nordic-Baltic Macroprudential Forum (NBMF) and its subgroup (NBMFsg), where the central banks and supervisory authorities of the respective countries cooperate at the management level in the field of financial stability and macroprudential policy. In 2026, the Danish central bank and supervisory authority take over the management of the NBMF and NBMFsg, and Latvijas Banka will continue its active participation in these fora.

Latvijas Banka's experts participate in the NBMF's Nordic-Baltic Stress Test Task Force. Its main task is to assess the interconnectedness of the Nordic and Baltic banks and its impact on the financial stability of the region, taking into account the cross-border analysis of the non-bank financial sector.

Within the NBMF, Latvijas Banka, together with the central bank of Lithuania, continued to lead the workstream of borrower-based measures' experts in 2025. The main topics addressed were the calibration of these instruments, impact assessment, and the most effective ways of applying them.

Experts of Latvijas Banka also participate in the workstream of NBMF experts on capital-based instruments. This workstream provides an exchange of experience on approaches to the calibration of capital buffers, impact assessments, as well as on enforcement practices in different countries. During the reporting year, particular attention was paid to the impact of the Basel III reforms on bank capitalisation, as well as to the methodology for setting O‑SII capital buffer requirements.

During the reporting year, Latvijas Banka contributed to the assessment of the financial stability of systemic risks in the euro area and the assessment of macro-prudential policies by participating in the work of the Financial Stability Committee (composed of representatives of the ECB, the national central banks, and the supervisory authorities of the Banking Union) and its sub-groups. Latvijas Banka also participated in the ESRB's Advisory Technical Committee and its working groups – drafting policy and analysis documents and formulating opinions at the EU level.

Taking into account the current developments in the EU in the field of banking regulation simplification, Latvijas Banka provided proposals and views on regulatory simplification in expert working groups of various EU institutions (e.g. ECB and EBA), including helping to develop a position on such a topic relevant to the Latvian banking sector as the review of the framework for small and non-complex institutions and O‑SIIs.

In 2025, Latvijas Banka contributed to the joint ECB-ESRB report on financial stability risks stemming from geoeconomic fragmentation. This study brought together representatives of 19 European central banks as well as supervisory and resolution authorities. Latvijas Banka led one of five international research teams with the aim of selecting, grouping, and analysing geopolitical risk indicators.

In cooperation with the Economic Policy Council, the central bank of Slovakia and the central bank of Hungary, a study on the inclusion of sustainability considerations in borrower-based measures was carried out in 2025 and presented at international conferences. The aim of the study was to find out the usefulness of using borrower-based measures to stimulate such lending that contributes to the development of a more energy-efficient housing stock. The results of the study were published in 2026.

During the reporting year, Latvijas Banka continued its active work in the NGFS, contributing to the preparation of the NGFS internal report “Accounting for Climate Change: Central Banks' Real-World Approaches to Physical Risk". The report summarises the practical experience of the central banking community in assessing physical risks and covers scenario-building, exposure assessment, modelling of impact channels, and assessing the impact of risks on banks' balance sheets. It also reflects Latvijas Banka's experience in flood risk assessment.

Analytical research and publications

In 2025, Latvijas Banka continued its analysis of a very wide range of topics related to financial stability and macroprudential policy.

Significant attention was paid to lending and the factors influencing it: developments in interest rates of non-financial corporations, the impact of changes in ECB interest rates, as well as the impact of natural phenomena on these developments in Latvia and Europe as a whole. Analytical material on the financial situation of companies in the commercial property sector in the context of interest rate changes, as well as a synopsis on the analysis of the credit risk of non-financial corporations were published.

In addition, an analysis of the outcome of the corporate income tax reform and its impact on the operations of companies was published, which can be used to prepare draft amendments to the Enterprise Income Tax Law in the future.

A methodology was developed to assess the long-term impact of macroprudential capital instruments on GDP growth.

Using the detailed data on all derivative transactions compiled in accordance with the European Market Infrastructure Regulation, an analysis of financial instrument transactions was initiated in order to assess the concentration and market risks of the Latvian financial sector more accurately.

Latvijas Banka continued to develop a range of analytical tools to assess the resilience of the Latvian financial sector to (financial) market shocks. The market risk stress test for insurers' investments was established on the basis of a similar market risk stress test method that applied to banks and was complemented by a Solvency Capital Requirement resulting from the decline in the value of insurers' investment portfolios.

Combining the data of real estate transactions and internet advertisements with the information of the Credit Register, the framework for the analysis of borrowers was expanded, providing an in-depth insight into the overall development of the real estate market and the influence of banks on it.

In 2025, Latvijas Banka continued to analyse and produce publications on other topics of importance for financial stability2Financial Stability Report, 2025.
, such as the investment habits of domestic households. Risks arising from high geopolitical pressures, fragmentation, and uncertainty and affecting Latvia's financial stability were also analysed. In addition, the calculation of the solidarity contribution was further explained. Significant attention was given to the frequently discussed non-bank financial sector and to investments in crypto-assets.