Hansabank: Balts should curb lending

  • 2006-11-22
  • From wire reports
RIGA - To reduce the risk of overheating economies, Baltic banks should curb lending growth, Hansabank group chairman Erkki Raasuke said last week.

He said that GDP growth of 6 - 8 percent a year might ensure long-term economic development in the Baltic states, whereas a higher rate of growth could spell long-term trouble.
If after 12-18 months the forecast for Latvia and Estonia's economic growth surpasses 10 percent, the risk of overheating for both economies should be considered, stressed Raasuke.

He voiced confidence that the Baltic region might retain rapid growth in the long-term, since the Baltic states were once the poorest countries in Europe. He added that short-term risks were high and currently endangered further growth.
The main area of risk is lending, which has doubled in the past years. However, Raasuke said that the Baltic states still have low lending volumes against GDP as compared with other European Union member states.

Another risk is the Baltic region's suffering workforce. Since EU accession, thousands of Balts have gone to work in foreign countries, mostly England and Ireland. Raasuke said that, even if local employers raised salaries by 10-20 percent, they would not find workers as there are no free laborers, and this would only foster inflation.

To reduce the risk of overheating economies, people's rush to borrow money should be stemmed, the banker said. This can be done by speaking to customers, he added, and banks must establish stricter lending conditions.
Raasuke predicted that lending should grow about 30 percent in the Baltic states.