Latvia cannot afford weak lending for another ten years - Kazaks

RIGA - Latvia cannot afford weak lending for another 10 years, said Bank of Latvia president Martins Kazaks in an interview with LETA.

He said that lending volumes against Latvia's economy keep declining over more than ten years. For example, in 2008, the share of loans issued to resident companies and households against the economy was 100 percent, while at the end of last year - just 28 percent.

"Yes, lending has slightly increased over the past years, year-on-year the loan portfolio has increased. It is good news. But the economy has increased much faster, therefore the share of lending against the economy has decreased. What does it mean? It means that investments in the economy have been weak. It means that Latvia's economic growth has been weaker than it could have been, and the future growth will not be as powerful as necessary if the investments are not made," said Kazaks.

Kazaks said that the Bank of Latvia has been working on this for 2.5 years already, holding consultations with the Lithuanian and Estonian central banks, the International Monetary Fund, the European Commission, holding meetings with administration of banks in Latvia, administration of banking groups abroad.

He noted that there is already improvement visible - banks are becoming aware of the situation, and the steps made in the past few months will lead into the right direction, even though much still has to be done.

"Banks can do and they should do more! We see that banks are profitable, and it is important, otherwise they would not be stable. Banks have the human and capital resource, but so far they have been using these resources too cautiously, living in memories of 2008, even though Latvia's economy now is much stronger and euro area membership is one of its factors," the Bank of Latvia president said.

He said that the central bank sees three main tasks for commercial banks - higher deposit rates, lower commissions and related costs, and preparing for lending when the economic growth resumes. At the same time, sustainability projects should be financed already today.