Lending prospects dim despite awaited ECB stimulus

Wide ranging stimulus measures taken by the European Central Bank (ECB) may or may not be able to kickstart lending by commercial banks in Latvia, Bank of Latvia economist Vilnis Purvins wrote on the central bank's analytical website www.macroeconomics.lv.  

"Lending prospects for the near future are not comforting. In the medium term, lending activity in Latvia could be stimulated by the wide ranging stimulus measures taken by the European Central Bank (ECB),” he said.

The fall in the total domestic loan portfolio of banks by 2.3% in December 2014 was mainlyu due to the writing off of loans and the repayment of some short-term loans. The balance of loans granted to non-financial businesses dropped by 3% and loans to households by 1.6%, the Latvian central bank’s economist said.

The year-on-year rate of decrease in loans was 7.1% in December last year, including 9.6% in loans granted to non-financial businesses and 6.7% in housing loans to households.

"With domestic economic growth slowing and geopolitical tension continuing, a considerable recovery in lending cannot be expected. Although according to the survey of bank lending conducted at the end of December, banks are not planning to toughen their standards in lending to businesses, the economic situation does not permit businesses to increase the demand for loans. With regard to household lending, the standards have been toughened as a result of the adoption of the amendments to the Insolvency Law, and the potential demand for loans has thus been reduced. Future lending activity in Latvia could benefit from the monetary stimulus measures taken by the ECB,” Purvins said.

According to the Bank of Latvia information, the Latvian banks' aggregate domestic loan portfolio amounted to €12.57 billion at the end of 2014.

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