RIGA - The number of bad loans belonging to Latvian bank is on the rise, and although they will ultimately impact banks' earnings they do not pose a threat to the system, a top regulator has said.
Uldis Cerps, outgoing chief of the Latvian Finance and Capital Markets Commission, told the Baltic News Service that the overall situation with bad loans has worsened "slightly."
According to his data, the number of bad loans has increased by 0.1 percent, which is significant enough to affect the financials of Latvia's banks but not undermine the system's overall health.
Cerps said that the credit portfolio could be assessed by looking at the dynamics of repayment of the principal loan sum without delay.
"Here we can see deterioration during the year. Yet it is observed for one category of loans with repayments delayed by up to 30 days. A year ago these made up 3.1 percent of the total loan portfolio, while this year the proportion is up to 4.9 percent," he said.
He added that although the delays in short-term loans have increased numerically it is too early to judge if the trend is permanent or temporary.
"Obviously due to some factors the payment capacity of the borrowers has declined. The banks have to closely follow what happens to these particular borrowers. This includes not only individuals, but businesses as well," Cerps said.
He added that no considerable changes were observed in the other segments, although the loans with repayments delayed by more than 180 days increased slightly from 0.3 to 0.4 percent and the ones with 91-180 days delay increased from 0.1 percent to 0.4 percent.
"This does not endanger banks, while it definitely may affect the capacity of the banks to profit. There is no doubt about that as well. The profit of banks this year may not be as high as it was last year," Cerps said.
The delays of loan repayments in Latvia increased as the economic development rate declines.
