Latvia's capital market at a standstill for 20 years, says finance watchdog

Take note – story published 2 years ago

The capital market has stagnated in Latvia over the past 20 years, said Santa Purgaile, head of the Finance and Capital Market Commission (FKTK), on Latvian Television January 19.

According to her, the capital market is a very important element of the financial sector. Companies may raise funding needed for development by taking bank loan or by issuing shares or other securities on the capital market. In Latvia, the percentage of funding raised in the capital market is “very minimal”.

“Companies have the opportunity to receive additional funding in the capital market, to pursue more ambitious targets. (…) For economic development, this [capital market] is essential. We see that, in fact, our capital market has stagnated over the last 20 years, in practice it is now illiquid,” Purgaile said.

According to her, capitalization of Latvia's stock market from gross domestic product is the lowest in Europe and also in the Baltic States. In her opinion, the problem is “multilateral.” Banking loans are available to businesses, although in recent years it has been increasingly heard that banks are lending less and credit portfolios are not growing.

Purgaile said that the capital market is more intended to raising funding for new development projects, while banks “are more conservative funders who co-finance projects”.

The head of the FKTK said that during the Covid-19, crisis Latvia's economic growth should be promoted, and the development of the capital market is one of the elements of economic growth and new investments.

On Tuesday, the FKTK will present a 10-step plan to develop Latvia's capital market. This plan is based on three main sections:

  1. What needs to be done by potential issuers, how to help them get to stock quotations and how to raise additional capital.
  2. Financial literacy. What potential investors need to know and understand in order to be able and willing to invest in the stock market.
  3. The role of the state. What the responsible national authorities could do in the development of the capital market. 
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