High loan interest rates in Latvia are due to banks wanting to earn higher profits - Eglitis

  • 2020-08-06
  • LETA/TBT Staff

RIGA - Latvia has the highest loan interest rates in the euro area, and that is because banks want to earn higher profits, Saeima Financial Sector Supervision Subcommittee Chairman Gatis Eglitis (New Conservative Party) said at the subcommittee's meeting today.

"We should not pride ourselves on Latvian banks' best quarterly profits in the euro area, we should rather be proud if we had the lowest interest rates. We have to look for solutions to make the banks lower the rates," Eglitis emphasized.

The high interest rates have an impact on the investment level, economic activity in the country, lending volumes, and the overall competitiveness of Latvia, said Eglitis.

"The largest banks' balance sheets are close to ideal, but lending is slow. This is not normal," said Eglitis.

He also said that the banking sector's reasons for the high interest rates were incorrect and not in line with the actual situation. Blaming the high interest rates on the EUR 1.3 billion losses the banks suffered in 2008 is unjustified, as the losses were largely due to the banks' inaction, said Eglitis.

"The Financial and Capital Market Commission should also be more demanding in communication with the large banks' shareholders," said Eglitis, adding that the insolvency sector had also been put in order. In the meantime, interest rates remain too high, even for the large and "good" companies, and the only reason for that is that the banks want to earn more, he stressed.

The subcommittee will once again review banks' interest rates in six months, said Eglitis.

In turn, the Finance Latvia Association's board chairwoman Sanita Bajare told the subcommittee that loan interest rates were determined not by banks' wish to earn more, but by risk assessments based on actual data.

"The banks would like to increase lending volumes, but companies' ability to borrow, taking into consideration their capital adequacy and profitability, is weak. On the other hand, the banks' risk models have been approved by the watchdogs," said Bajare.