The lending index compiled by commercial banks measures the public's willingness to borrow, while also tracking the banking sector's willingness to lend. The index has been growing over the years, reaching a new high last year since its creation in 2018. Last year, high interest rates and inflation slowed borrowing, with new lending falling by 15%. But in the longer term, banks see room for growth.
Ainars Balcers, co-chair of the Lending Committee of the Finance Latvia Association, pointed out that inflation is now falling, wages are rising, purchasing power is returning and the labor market is stable.
However, Latvia is currently lagging behind its Baltic neighbors in various lending segments, including lending to businesses. In surveys, entrepreneurs often cite a lack of financing as the reason that hinders their growth. Kārlis Vilerts, Head of the Research Department at the Monetary Policy Department of the Bank of Latvia, noted that both smaller and larger companies have problems:
"It is a bit of a myth that these conditions are very good for large companies. Yes, they are good compared to the small and medium-sized segment, but if we look at the Eurozone context, interest rates are also higher than in other parts. And the collateral requirements for entrepreneurs are much stricter."
said Ģirts Glasers, co-chair of the Lending Committee of the Finance Latvia Association, added:
"Businesses could borrow much more. Their financial statements and their capacity show that it could be twice as much, but businesses are conservative in a way, which is perhaps a good thing at the moment, given that we are at the bottom of the economic cycle. Borrowing costs are expensive. But we hope that they will borrow in the future."
Another fact often mentioned in relation to lending in Latvia is the disproportion between different regions of Latvia. Indeed, when comparing Rīga and Pierīga with the rest of Latvia, Rīga and Pierīga have an overwhelming dominance in mortgage lending. However, as the banks pointed out, this does not really apply to businesses. Especially in the segment of small and medium-sized companies, where, for example, the number of loans granted to SEB banka in the regions was higher than in Riga and Pierīga.
This was confirmed by Ģirts Priede, Head of SME Finance Segment at SEB banka:
"If you look at the share of each region in our gross domestic product and the size of SEB Bank's loan portfolio, you cannot say that one region is better or worse. They borrow as much as they can produce goods and services in a given place."
According to the bank's information, the borrowing capacity of Latvian entrepreneurs is much higher than the borrowing rates today.
Around 21,000 companies in Latvia are eligible for credit, but only 4,500 have received a loan.
