Latvians' ability and willingness to borrow grew steeply in 2018

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Latvians’ ability and willingness to borrow grew steeply last year, showing the fastest rise in three years, shows the private individuals’ segment of the lending index drawn up by the Finance Latvia Association.

The association’s representatives noted that private individuals’ ability and willingness to borrow showed strong rise in 2018, with the respective indices growing by 15 points to 123 points and by nine points to 111 points.

Meanwhile, the lending index in the segment of private individuals grew from 104 points in 2017 to 107 points in 2018. The growth of the lending index in 2018 was only slightly slower than a year before. In 2016 and 2015 the value of the lending index in the segment of private individuals was 100.

Last year, the growth in both areas was driven by steady economic growth, declining unemployment and continued wage growth, the association said.

“Last year's impact of wealth and income growth on the population's financial stability and overall sentiment is demonstrated not only by statistics but also by the increase in the demand for loans. Although credit conditions for individuals have not changed significantly over the previous year, the number of potential borrowers, who, for instance, wished to purchase housing through a loan, has steadily grown. Certain measures implemented by the state undoubtedly played an important role in this as well: for example, Altum program of support for the purchase of housing was expanded in 2018, which made soft mortgages accessible not only to families with children but also to young professionals,” Ainars Balcers, Co-Chairman of the Finance Latvia Association’s Lending Committee and Head of Swedbank Baltic division’s Mortgage Support Department,

He said added that notwithstanding people’s increasing willingness to borrow, people were assessing their borrowing options increasingly carefully, weighing the loans’ long-term impact on their family budgets. This shows that public awareness of responsible borrowing has increased, Balcers said.

At the same time, banks’ lending ability decreased by 12 index points last year, from 96 points in 2017 to 84 points in 2018, amid structural transformation taking place in the banking sector and some banks’ change of strategy.

The banks’ risk appetite and requirements for private borrowers remained unchanged over the past year, so the bank’s willingness to lend stayed virtually at last year’s level, edging up from 111 points in 2017 to 112 points in 2018.

The association said that the percentage of loan denials did not change much either last year and that the impact of shadow economy and bad credit scores were still the most widespread reasons for loan denials.

“Overall, it can be concluded that the credit environment for the private customer segment has shown a healthy potential over the last year, but in certain areas, such as student and academic loans, trends indicate the need for improvement,” Balcers said.

The Finance Latvia Association's Lending Index for the private customer segment is a complex measurement, which defines both, the Latvian population's ability and willingness to borrow, and the banking sector's ability and willingness to lend. The index analyses a total of 14 different indicators, such as late payment, changes in unemployment, the share of the shadow economy, the banking sector's financial data, consumer sentiment, etc. Thus, it provides a full account of the complexity of credit as the driving engine of the economy.

The Finance Latvia Association developed the index in cooperation with a number of Latvia's leading economics and credit experts and by analyzing the best international practice examples.

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