For the first time in seven years, there are more new loans than written-off loans in Latvia

Added: 03.03.2016
In 2015, commercial banks' total loan portfolio has increased by 0.1%. It means that for the first time in seven years, there are more granted loans than written-off loans. The positive changes have been driven by increased lending to enterprises – new loans granted to the Latvian enterprises amount to 1.34 billion euros, an increase of 5% than the year before. However, banking experts suggest that 2016 will bring lots of challenges – the delay in opening the EU funds has a negative impact on both individual sectors and the economy as a whole.
“There has not been a positive loan portfolio in Latvia since 2008. However, it is too early to assess whether the trend is going to continue – one period of the EU funding ended in 2013, and the next one began in 2014, but in reality, even in 2016, there is no active fund opening taking place. Last year's results show that the sectors in which the co-financing from the funds is at least partially available, such as agriculture, forestry and fisheries, demonstrate better economic indicators and more optimistic sentiment among the entrepreneurs compared to the sectors in which the access to financing is limited, such as manufacturing,” says Kārlis Danēvičs (SEB banka), Co-Chair of the Lending Committee of ALCB.

Rapid fall of investments in manufacturing sector

Over the past five years the high influx of investments in the manufacturing sector helped it to actively export and stimulated the economic recovery. But now it’s the opposite, as the amount of investment is falling rapidly and has decreased by 49% in the last year. However, positive trends can be observed in agriculture, forestry and fisheries. The amount of newly granted finances has risen by 20% – four times the total increase of the amount of new loans in the last year.

Most loans for small enterprises

Almost a third of the loan portfolio (29.3%) or 1.84 billion euros were distributed among small enterprises that employ up to 50 people. Almost one fifth (23.9%) or 1.5 billion euros were given to micro-enterprises that employ up to 10 people. “To finance an enterprise, it is not the size of it that is important, but the vitality. If the finances are in order – there is a concise business plan and the flow of finances is adequate and transparent –, if the manager is competent and experienced, and if the enterprise has a sufficient security, the banks will be interested in financing and will compete for the chance to work with such a client,” says Ieva Vērzemniece (Citadele banka), expert of ALCB lending committee.

Banks are willing to lend, but enterprises don’t wish to invest

Banking experts point out that banks have the finances for lending. If necessary, this year they could invest in the development of economy up to 5 billion euros. However, the entrepreneurs show little interest in loans – 40% do not plan to invest in business development this year, although 29% are aiming for new or current export markets. Entrepreneurs themselves expect that the investment activity in 2016 will be lower than it was the previous year. The demand for investment is mostly affected by the unapproachable nature of the European funds, as well as the geopolitical situation and the stagnation of the euro-zone.


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