Analytics, Economics, Financial Services, Latvia, Loan, Markets and Companies, Shadow economy

The association points out that over the past three years, commercial banks in Latvia have issued EUR 2.7 billion worth of loans to companies, with EUR 155 million issued during the first quarter of 2015. The total credit portfolio of loans issued by Latvian banks to companies is EUR 6.4 billion.

The association also goes on to say that banks are prepared to issue loans to healthy companies, and that there is much competition to issue loans to Top 50 or Top 100 companies operating in Latvia. However, the association adds that there is relatively passive demand from these companies for new investments. The association points out that larger companies operating in Latvia usually have better lending conditions than in Scandinavia.

The association also points out that the main hindrance for companies to obtain loans is related to the shadow-company – undeclared profit volumes by Latvian companies in 2013 was the largest in the Baltics, reaching about 10% of GDP. At the same time, growth is also hindered by the deficient use of structural funding, as well as a lack of accumulated capital. For example, the association points out that Lithuania is a step ahead of Latvia in acquiring structural funding. Lithuania will be investing EUR 700 million into improving energy efficiency, which will be a positive stimulus for the whole economy, as it will create new jobs and lessen energy dependence, as well as lead to smaller energy bills for residents.

As reported, Economy Minister Dana Reizniece-Ozola said in an interview with the LNT television channel today that Latvian banks' lending policies are too passive, which hinders Latvia's economic growth.

She said that although Latvia's economic growth indicators are "not that bad" as one might expect due to the Russian crisis and sanctions, and the growth could reach 2% this year and 3% in 2016, the growth is nevertheless hindered by passive lending policies by banks, which can be described as "very, very bad."

The minister intends to discuss the matter with the ruling coalition, inviting banking watchdogs and the largest banks to explain why lending is not being renewed in Latvia. Reizniece-Ozola stressed that at the time when Saeima was discussing the non-recourse mortgages initiative, banks pressured the parliament to turn down these amendments, at the same time promising to restore lending. Now it is evident that the politicians kept their promise, while the banks did not.

Reizniece-Ozola has no clear plan of action in case the banks do not cooperate and refuse to change their crediting policies.