Latest Latvian Bank Financial Stability Report 2026 Published

17.06.2026.

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The Latvian Bank has published the latest "Financial Stability Report," which analyzes the development and resilience of Latvia's financial system.

Key points:

The Latvian financial sector as a whole remains stable and resilient. The most significant risks to the financial sector are long-term high uncertainty and geopolitical shocks, including armed conflict in the Middle East region. The impact of geopolitical shocks on Latvia's financial system is mitigated by its increasingly small direct financial link with the shock epicenters. However, due to the armed conflict in the Middle East, the credit risk of borrowers in the most energy-intensive sectors has increased, and credit growth, which has been active thus far, may slow down.

The level of funding and liquidity risk for credit institutions remains low. Although bank profits in 2025 decreased due to declining interest rates, the formation of larger provisions, and solidarity contributions, they remain good and help maintain high capitalization. Credit institutions' capital reserves are generally sufficient to absorb potential losses in the event of a financial shock.

The Latvian Bank's macroprudential policy focuses on the resilience of the financial sector and the proportionality of regulation.

The introduced CCyB base rate of 1% within the framework of the positive neutral countercyclical capital buffer (countercyclical capital buffer; hereinafter – CCyB) further strengthens bank resilience. This is particularly important in conditions of increasing external uncertainty.

Borrower-oriented instruments continue to promote the observance of responsible and sustainable lending standards.

In 2025, the Latvian Bank reviewed and simplified the analytical framework for identifying systemically important institutions (i.e., other systemically important institutions; hereinafter – O-SII) and for calculating O-SII capital reserve requirements. Consequently, the number of O-SIIs decreased from five to three institutions. The revised framework is more appropriate for the specifics of Latvia's financial sector and more proportionate from a supervisory perspective.

Lower interest rates, a better financial situation of borrowers, and increased bank motivation to issue loans significantly stimulated domestic lending, and previously insufficient credit support for investments has begun to increase. At the same time, the ratio of bank loans to domestic gross domestic product (GDP) continues to remain low. Moreover, investments and lending continue to be constrained by several structural factors of the business environment, including the shadow economy, availability of human capital, and the financial capital market.

Faster mortgage lending has stimulated housing market activity and simultaneously promoted the development of new real estate projects. The share of bank-financed housing purchase transactions reached the highest level in the last seven years in 2025. In conditions of shrinking supply, housing prices have begun to rise faster, which has slowed the improvement of their affordability, but the overall increase in housing prices is moderate.

Insolvency risks in the real estate sector continued to decrease overall, and the commercial real estate market began to stabilize gradually. However, a mismatch between supply and demand is still observed in the office space segment, and tenants moving to newer offices contribute to market polarization and affect space occupancy indicators. For more sustainable development of the real estate market and the promotion of a qualitative and available housing stock, it is important to significantly increase the pace of building renovation, including making substantial investments in improving energy efficiency.

The solvency and resilience of Latvian borrowers generally remained at a good level. Household payment discipline is very good. In the corporate sector, credit quality deteriorated slightly at the end of 2025, mainly due to the realization of the risk of deteriorating credit quality mentioned in the previous "Financial Stability Report," but the deterioration in credit quality affected a narrow group of companies. However, the increase in energy resource and labor costs, as well as the rise in EURIBOR priced in financial markets, will create downward pressure on corporate profitability and debt servicing capacity in the future.

Latvia is implementing a clear and very significant commitment to strengthening state defense capabilities, which contributes to financial stability. However, the necessary increase in the return on state expenditures, required to secure funding for defense and other priority state expenditures, is delayed, and at the same time, the level of public debt is rising. Accordingly, the risks are increasing that rapid changes will occur in fiscal, including tax, policy, which can negatively affect the business and investment environment, as well as its predictability. The delay in significantly increasing the return on state expenditures accumulates the risk of rapid changes in fiscal policy, including tax policy, in the future and creates systemic vulnerability. This is exacerbated by the slowed economic growth in Latvia due to global uncertainty and geopolitical shocks.

The "Financial Stability Report" also includes several thematic appendices and inserts :

extraction of unstructured financial data from annual report appendices using artificial intelligence models;

evaluation of the long-term impact of changes in capital requirements on GDP;

review of the Latvian Bank's analytical framework for identifying and recognizing O-SIIs and setting the O-SII capital reserve requirement;

direct financial links of Latvian credit institutions with Russia, Belarus, Ukraine, Middle East region countries, and the USA, as well as the role of banks in financing housing purchase transactions;

continuation of the assessment of climate risks threatening the Latvian financial sector – storm risk assessment in the stress testing section of the report.

The "Financial Stability Report" can be accessed on the Latvian Bank's websites makroekonomika.lv and bank.lv .

Financial Stability Report 2026

All Financial Stability Reports