Boston, MA -- (ReleaseWire) -- 12/12/2012 -- BMI View: In spite of some promising signs of improved profitability and higher capital adequacy ratios in the Latvian banking sector, we expect the recovery from the 2009 downturn to be only gradual. This is predicated on our expectation that a challenging macroeconomic backdrop coupled with a bias towards de-leveraging will keep demand for credit weak. Meanwhile, a loss of faith in the sector will keep the deposit base under pressure at least through 2012. Latvia's banking sector remains in a state of relative stagnation with signs of a nascent recovery. We expect any recovery that materialises to be characterised by very low growth owing largely to the challenging macroeconomic and demographic situation in the country. In spite of posting strong headline GDP figures - Q112 flash real GDP estimate came in well above expectations at 6.8% year-on-year (y-oy) - Latvia's economy is still recovering from the extremely deep recession in 2009 when the economy contracted by close to 18%. Furthermore, weak economic prospects have led to a wave of mass emigration, leaving the total population 13% smaller than in 2000. The shrinking population combined with a bias towards de-leveraging has resulted in weakened demand for credit.
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