RIGA — Latvia’s banking system is set to lose up to €2 billion in 2009-10 as a result of the country’s steep recession, according to estimates released Tuesday.

Jānis Brazovskis, deputy chairman of the Finance and Capital Markets Commission, which regulates the banking sector, told Latvijas Radio that the sector lost 773 million lats (€1.1 billion) last year, while Teodors Tverijons, president of the commercial bank association, told Diena in an interview published Tuesday that the industry would lose 400-500 million lats (€564-705 million) in 2010.

Assuming a loss of 450 million lats (€635 million) this year, that would mean that Latvian banks would lose a total €1.75 billion for the two-year period.

By comparison, the banking sector’s aggregate profits since 2002 amounted to a total 1.4 billion lats (€2 billion) — signifying that the current crisis will essentially wipe out all the profits that the industry racked up during the so-called “fat years.”

For years Latvia was proud of its strong financial sector and singled it out as an engine for growth in the future. The country currently has 21 banks and 8 affiliated of foreign-based financial institutions. Two banks — Parex Bank and the Latvian Mortgage and Land Bank — are majority-owned by the government.

On the bright side, Brazovskis said that the industry managed to avoid a complete collapse, and that several banks worked with an operating profit – even though this was eventually erased by provisions for bad loans.

Tverijons, for his part, said he believes that the industry could return to profitability in 2011 if the government spends less time quarreling and more on kick-starting the economy. He said the association has forecast that Latvia’s economy fell 18 percent last year and will shed another 3 percent in 2010.

Latvia’s banking sector last posted a profit in 2008 – the year the economy started its extended downward slide – when the sector earned 78 million lats.