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CONTEXT AND TRENDS
In July 2012 Latvia's prime minister made the bold announcement: "The crisis is closed, now we move towards development." Many agree that Latvia has indeed turned a corner....

CONTEXT AND TRENDS

In July 2012 Latvia's prime minister made the bold announcement: "The crisis is closed, now we move towards development."

Many agree that Latvia has indeed turned a corner. After suffering some of the worst output losses of any country during the world financial crisis it is now in a position to borrow independently. "We have graduated from the IMF and EU recovery loans programme and now we are a good example of how a country can pull through austerity measures," says one partner.

Not everyone agrees with this view. "The economy is contracted," says one partner. "Yes we have low debt but banks are still extremely conservative and bank lending is non-existent. We need something to kick start the economy or things will stay stagnant."

Nonetheless, most agree that the local banks, which managed to survive the crisis are more competitive. Having already restructured their loans, lending capital has once again increased. However, this seems to be more theoretical than anything. "They say they will lend to the good projects but in reality this is not happening. The banks are very conservative and it will stay that way until they are forced to inject liquidity into the market," says another practitioner.

One of the victims of a contracted banking sector is capital markets and not surprisingly there has been an absence of IPOs since the crisis.

A three-prong approach is underway in Latvia to deal with the current banking crisis. The Krajbanka, which was the Latvian arm of Snoras has been allowed to go bust. The government have taken over Citadella, which was originally part of former Paras bank and the Mortgage and Land Bank of Latvia which is 100% government owned is slowly being sold off piecemeal.

In turn this is expected to attract investment and an increase of M&A and financial and corporate activity. "M&A can be characterised as cautious. It's different from Europe because since our dramatic fall in 2008 the legal market has been climbing up and last year saw a significant climb in M&A. Now things are stagnant. There are no new players or challengers yet no-one has left."

Industry areas of most activity remain the usual suspects; telecoms, Pharma, banks.

Private equity hasn't yet made an impact in Latvia but many predict it is about to launch. "There is a lot of interest from foreign investors; the East, Russia, CIS countries and Scandanavia," says one corporate partner.