Credit demand in Latvia

Although the demand for credit in Latvia is lagging behind the growth trends of the USD area, in 2016, and more specifically in the first and second quarters of 2016, the volume of issued loans has resumed in Latvia.

Annual trends

Annual trends

Economist of the Agree Bank’s economic data analysis says that for the sixth consecutive month in August the banks’ loan portfolio has been growing for the sixth consecutive month.

“With every month of a slight but steady rise in the credit portfolio, confidence in the credit stagnation is coming to an end. Although the sentiment of borrowers has not improved significantly due to the external situation and cautious economic growth forecasts, banks’ assessment of future developments (for example, “SEB banka”) gives a positive outlook, “Reupsin writes.

This means that banks are starting to issue more loans after several years of “drought”. For example, in the first eight months of the year, consumer credit to households increased by 6.8%. The total loan portfolio of banks at the end of August 2016 was 3% or more than at the end of last year and 0.2% more than at the end of July. True, although banks are more active in granting consumer loans, this does not mean that household loans are growing – banks are less likely to issue mortgages, and overall, in August this year, banks had issued 1.8% or less than at the end of 2015, The Agree Bank.

On the one hand, banks are not giving as much credit as they have been asked to, because, for example, the volatility of the Russian economy has led to a significant decline in non-resident deposits. As a result, some banks do not have enough money to lend to make a profit. However, resident deposits are on the rise and the economic situation is good and will soon improve – and when people can afford to spend, they can also afford to borrow. On the other hand, a banking supervisor in Latvia has even shut down one bank serving non-residents this year. As a result of various risks, including geopolitical risks, banks may not be as burdensome in lending, even though demand for them exists.

Non-bank loans

Non-bank loans

According to the Latvian Alternative Financial Services Association, in April 2016, the largest non-bank lenders had a total loan portfolio of USD 88 million, while new loans had increased from USD 50 million to USD 55 million in April 2015. This means that demand in the non-bank credit sector has also increased. According to the above data, the quality of the loan portfolio has also increased, which means that the share of people who have borrowing problems is increasing. So people start to borrow more because they can afford it.