LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Edijs Brants, Pauls Zeņķis and Kristens Vorslavs, BERG
1.6 ESG/Sustainability-Linked Lending Latvia is progressively reinforcing its ESG and sustain- able finance framework, guided by both EU regula- tions and national initiatives. Notable steps include the creation of regional ESG data platforms (such as the ESG Hub and SusTool), enhanced institutional trans- parency through climate-related disclosure reports from the central bank, which detail significant reduc- tions in portfolio carbon footprints, and the continued use of green financing instruments. The sectors most influenced are finance and banking – where ESG factors are now embedded in lending and investment practices – as well as green infra- structure fields such as renewable energy, sustainable construction, and transport, which remain the main beneficiaries of sustainability-linked financing. Latvia is establishing itself as a regional hub for sus- tainable finance, with ESG considerations becoming a core element of investment strategies, lending deci- sions, and corporate governance. 2. Authorisation 2.1 Providing Financing to a Company Credit Institution If an institution qualifies as a credit institution it must be granted a licence or permit by the European Cen- tral Bank, in accordance with the Credit Institutions Law. Obtaining such a licence is a complex and time- consuming process that unfolds in several stages. It begins with a preparatory phase, during which the Bank of Latvia collects detailed information regarding the sources of funding, the bank’s founders, and its prospective officials. This is followed by the submis- sion and evaluation of the application, resulting in the decision-making stage, which is carried out in consul- tation with the European Central Bank. B2C If a non-bank lender provides credit to both business- es and consumers but does not qualify as a credit institution, it is required to obtain a specialised licence issued by the Consumer Rights Protection Centre for the issuance of loans to consumers. The cost of this licence is EUR250,000 for issuance and EUR55,000
Recent years have seen an unprecedented increase in the bond market, with corporate bonds emerging as the primary financing instrument due to the high interest rates on bank loans. The popularity of public offerings among investors has been supported by a low entry threshold. In Latvia, high-yield (junk) bonds are not very common. Currently, bonds with relatively high coupons are trading above their issue price (trad- ing levels above 100), which indicates that investors view them as safe and reliable. 1.4 Alternative Credit Providers Companies are increasingly turning to alternative lend- ers, not only to complement traditional bank loans but also when they need quick access to capital or short- term financing. The key drivers behind this choice are the faster, more streamlined funding process and the greater flexibility offered in repayment terms. There has not been a significant growth in non-bank consumer lenders. On the contrary, since 2019 the number of licensed non-bank consumer lenders in Latvia has declined significantly – from 61 to 37 com- panies – representing a reduction of nearly 39%. The most notable decrease occurred during the first half of 2021. However, since 2023 the number of licensed non-bank consumer lenders has remained stable. 1.5 Banking and Finance Techniques As a result of growing awareness and interest in the finance market, private debt and bond/private bond issuance are growing. For example, in the last year Latvia saw record bond issuance volumes, with increased participation from retail investors and companies using bonds for refinancing and expan- sion. In order to minimise costs for borrowers, finan- cial and banking institutions are increasingly using credit consolidation and refinancing. Furthermore, in the banking sector, there is rising use of non-bank instruments and support via EU-backed guarantees and concessional finance: the European Investment Fund (EIF) and Noviti Finance entered into a guarantee agreement under InvestEU to provide tailored micro- loans to small businesses in Latvia without collateral in many cases.
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