Establishing of the credit institution in Latvia

In Latvia a credit institution prior to recording in the Commercial Register has to submit to the Financial and Capital Market Commission an application for the receipt of a license.

Registration of the credit institution in the Commercial Register shall be carried out only after the decision of the Financial and Capital Market Commission to issue a license for the operation of a credit institution has been submitted to the Commercial Register. 

A credit institution may be founded (owned) by natural persons or legal persons.

The founder (owner) as legal person can be:

  1. whose period of activities is not less than three financial years (this provision does not apply to a financial and capital market participant who is licensed in a foreign state, which is a member of the World Trade Organization, as well as to legal persons where the sole shareholder or the sole stockholder is a Member State, a state of the European Organization for Economic Co-operation and Development);

  2. whose financial reports are prepared in accordance with international accounting (financial reports) standards and audited in accordance with international auditing standards, as well as an opinion of a sworn auditor is enclosed therewith [financial reports of legal (registered) persons registered in the Member State may be prepared in accordance with the accounting standards in effect in the relevant Member State];

  3. the State or local governments. 

The founder (owner) has to be identifiable, have an impeccable reputation, financial stability, as well as for the legality of their financial resources to be provable by documentary evidence.

In evaluating the reputation and financial stability of a person, the Financial and Capital Market Commission has the right to examine the identity, criminal record and documents of the persons, which allow the Commission to ascertain the sufficiency of free capital for the amount of investments made into the capital and reserves of the credit institution, as well as the fact whether the invested funds have not been acquired in unusual or suspicious transactions. In evaluating the financial stability of a person, the requirements regarding sufficiency of free capital shall not be applicable to credit institutions and insurance companies. 

The initial capital of a credit institution has to be not less than 5 million euros. The initial capital can consist of one or several following items, which correspond to the requirements of EU Regulation No 575/2013 regarding Common Equity Tier 1 items:

  1. shares, as well as other capital instruments and respective premiums;
  2. retained earnings or losses;
  3. other accrued income indicated in the statement of comprehensive income;
  4. other reserves;
  5. profit of the current business year. 

A credit institution registered in a EU Member State, the branches thereof or branches of a foreign credit institution have the right to engage in activities of a credit institution in the Republic of Latvia. 

The foundation of new bank (credit institution) can take up to 1,6 - 2 years. 

In Latvia the smallest banks are:

  • Latvian Post Bank, which share capital is 11 750 000 EUR
  • Trasta Commercial Bank with share capital of 26 696 000 EUR; an
  • Rigensis Bank with share capital of approximately 37 560 000 EUR.

Therefore the commercial value of these banks is higher than the share capital.
Please be informed that all other existing banks in Latvia are larger and have Scandinavian, Russian or local capital.

In Lithuania local and lower capital banks are Medicinos bank and Siauliu bank. Other banks are larger and leaded by Scandinavian capital. 
The smallest is Medicinos bank having approximately 20 million EUR share capital, thus commercial value of this institution would be much higher.

Finasta bank was purchased by Šiauliu bank this year, and Citadele bank received new foreign investors recently. 

Despite the banks, Lithuania has other type of financial institutions established - Credit unions. 
Credit union do render most of the financial services rendered by banks however their capital sufficiency requirements are nearly twice higher (20 % personal against loaned portfolio),  fixed geographic area of lending services, limitation on investment in property (only for personal need - premises), limitation on investment (only governmental, ECB securities) and other. 

In Estonia besides large Scandinavian banks there are 3 smaller banks, like Versobank AS, share capital is 14 088 775.20 euro. The biggest shareholder is Ukrainian company UKRSELHOSPROM PCF LLC. Equity is approx. 12 175 000 euro.

TALLINNA ÄRIPANGA AS, share capital is 25 500 000.00 euro, biggest shareholder is Leonarda Invest AS who owns 48,29 %, all other shareholders have each less than 10 %. Equity is approx. 18 054 000 euros.

BIGBANK AS, share capital is 8 000 000.00 euros and it is owned by 2 natural persons in equal parts. Equity is approx. 80 million euros.

Therefore as you can see even the smallest banks value exceed 10 million USD.
Therefore there is a possibility to the client to acquire certain percent of the total shares.

In case the client is not strongly fixed to overtaking a Bank, we could also review and suggest other business to purchase in Baltics, e.g. Hotels, Real property etc.

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In many regards, Latvian advocate Valters Gencs is the archetypal modern Baltic attorney – US educated, willing to take a commercial risk with his firm, which has been successfully operating for almost 16 years.  

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