Banks in no rush to credit iffy economy

The European Central Bank’s (ECB) drastic stimulus plan to cut interest rates to record lows has barely even nudged Latvia’s banks toward more active crediting, state central Bank of Latvia spokesperson Anete Bērziņa told Latvian Radio (LR) Thursday.

There are increasing concerns that Latvia’s commercial banks are being far too passive in providing credits to the national economy. Not only do the data confirm this trend, but the ECB’s offer through its TLTRO long-term refinancing operations to pump up to €560m into Latvian banks at historic low rates – 0.15%, has in its first stage garnered requests for only €25m, a tiny fraction of the available funding.

However, Bērziņa expressed hope that the remainder of the targeted lending resources will be utilized in subsequent rounds.

“We mustn’t forget that there will be another chance in December. But let me remind you that this was the first big opportunity for refinancing where Latvian banks could take part as full euro-zone members, but for some reason, possibly having to do with excessive caution, the activity was far lower than expected,” she said.

She warned prospective borrowers that just because the ECB is offering such low-cost loans doesn’t mean the business sector will see the great reductions in interest rates in their own portfolios.

The Commercial Banking Association on its part claims the sector has adequate resources to meet current demand for credits.

SEB Banka board member and the Commercial Banking Association’s Credits Committee head Kārlis Danēvičs explained that the lack of interest in the ECB’s stimulus package has more to do with a lack of stability in the regulatory environment and the dearth of attractive projects deserving of loans.

“The banking sector for years has been saying that crediting is weak in Latvia not because there aren’t enough resources but because banks have no appetite for risk in a poorly regulated legal environment, such as we’re seeing now,” he said.

Danēvičs admitted that wary banks might never take advantage of the full scope of the ECB’s stimulus offer.

He added that some established entrepreneurs simply refuse to assume the risk of borrowing, even when multiple banks approach them “in desperation” to offer development financing. Other newer businesses have trouble establishing credit relations and earning trust from partners in a weak legal environment. Still others slowly invest their own resources and avoid taking loans, but they make up a small group and couldn’t ensure a swift rise in crediting, he noted.

Economics Ministry state secretary Mārtiņš Lazdovskis disputed the claim that there are no worthy projects to credit.

“We’ve watched not just the enterprise sector, but also are getting signals from homeowners that the banks are being, diplomatically speaking, very cautious in their granting of credits,” he said. “In some cases it’s just not possible to get the financing. And that prohibits residents from realizing projects, the state from qualifying for structural funds, and business from developing,” he added.

The ministry accuses the banks of just making false excuses, even taking on a “blackmailing tone of voice” in their public communications. Lazdovskis urged all sides to “put their feelings aside” and figure out the real obstacles to jump-starting the financing.

Commercial Banking Association rep Danēvičs admitted that problems with the regulatory environment only became apparent during the crisis years, but that there were of course mistakes made on the part of the banking sector, as well.

Meanwhile the Economics Ministry has concluded that the state will have to promote EU co-financing projects through the proposed unified Development Financing institution.

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Economy
Economy