Analytics, EU – Baltic States, Financial Services, Investments, Latvia

The agency reported that Latvia's ratings are supported by solid public finances, as well as institutional strengths and a credible policy framework that come with EU and eurozone membership. A lower income level and weaker external finances than higher-rated peers are constraints on the rating.

Fitch said that the closure of Latvia's largest non-resident serving bank (ABLV) due to money laundering and corruption allegations is hastening the decline of a sector that Fitch has considered a risk to financial stability. Deposits in other non-resident serving banks continue to fall and new restrictions on the sector are being put in place, suggesting further downsizing of the sector. Latvia has experienced some near-term reputational damage from ABLV, but the broader fallout looks manageable, due to the segregation of the sector from the domestic serving banks and economy, the agency said.

Growth is forecast to slow to 3.6% in 2018 and 3.1% in 2019 due to a decline in the pace of increase in spending of EU funds, the impact of labour market tightness, and a slowing EU economy in 2019, according to the agency.