Working Life Barometer in the Baltic Countries 2002 (pdf) - mol.fi

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The legal framework for enterprises is in place, although enforcement of
relevant legislation still poses problems. Several important steps have
recently been taken to create a comprehensive legal system. In July 2001, the
computerised national Land Book was introduced, strengthening the legal
certainty in the real estate market. In October 2001, a new unified utilities
regulator, the Public Utilities Commission, started its activities. Finally, an
important and long awaited change in company law was the new Commercial
Code that came into force in January 2002. The law simplifies legislation,
makes it more transparent, and brings it into line with EU requirements.
However, the business community still points at the lack of administrative
capacity, which undermines the enforcement of the legislation.
The financial sector is functioning well, although intermediation is still low.
On average, domestic credit to the private sector has increased by some 46%
annually since 1997. However, the increase has taken place from low levels.
Thus it only amounted to 28.6% of GDP at the end of 2001, roughly double
the ratio compared to that in 1997. 22 banks are currently operating in Latvia.
Although some of them are very small and operating in market niches, this
relatively high number of market operators guarantees a sufficient degree of
competition, as witnessed by the downward trend in spreads between interest
rates on loans and deposits. The spread for short-term loans and deposits has
significantly declined from 9.4 percentage points to 5.9 in 2001, and for longterm
loans and deposits from 7.2 to 3.6. Foreign involvement in the banking
sector has been large and stable during the last years. The privatisation of the
banking sector is almost complete and state ownership amounted at the end of
2001 to just 3.7% of total bank capital, whereas foreigners held 67.8%.
The financial sector has reached an adequate degree of stability. As a share of
total loans, non-performing loans have decreased from 10.0% to 2.8%. All
banks fully comply with the capital adequacy requirements. The capital
adequacy ratio was 16.2% on average between 1997 and 2001, but has been
declining and was 14.2% at the end of 2001. Supervision of the capital
markets has improved significantly. In July 2001, the new Financial and
Capital Market Commission started to operate. The commission unifies the
supervision of the financial and capital markets into one body, and has been
given far-reaching independence, similar to that of the central bank.