RIGA - A proposed moratorium banning banks from evicting struggling home owners by Latvian transport Minister Ainars Slesers would cost the economy about 1.6 billion lats (2.2 billion euros), according to banking analysts.
In a scathing attack on Scandinavian banks operating in the Baltics such as SEB, Danske Bank and Swebank, Slesers accused banks of profiteering from Latvia's misfortune by selling housing from loan defaulters.
The minister, one of the most high profile members of the cabinet, called on the Latvian government to introduce laws restricting the banks' rights to pursue debtors and seize assets from defaulters.
Slesers, who made the comments in a television interview with Latvia's LNT, also blamed banks for contributing to the current economic crisis with loose lending policies.
Lured by the promise of cheap credit, many Latvian families had undertaken massive liabilities that would take from 20-40 years to repay, he said.
"I think this is the right time to present a bill to the Scandinavian banks for their irresponsible work in the past time," said the minister.
"In this case we do not have to beg the Swedish banks to understand the difficult situation and not to deprive our residents of their homes. We should adopt a law imposing a three-year moratorium, during which no bank may put out any family from their homes," he said.
The plan, which is due to be discussed at a party board meeting on Jan. 19, has also found support from Prime Minister Ivars Godmanis.
The plan drew a tepid response from the banking industry, with Commercial Banks Association president Teodors Tverijons accusing the Minister of adopting a populist stance.
Tverijons said that at present about 7 percent of Latvian residents who have taken loans are now struggling with repayments.
However, Tverijons denied banks had behaved irresponsible, saying the current problems have been caused not by the banks but by the economic situation.
If the situation with bad loans deteriorates, reaching 10 percent, introduction of such a moratorium would require 1.6 billion lats, said Tverijons, adding that the current share capital of all banks is just 1.8 billion lats.
If a source of the necessary funding is found, a moratorium could be introduced for five years, he said.
Tverijons said representatives of banks had already entered discussions with Economic Minister Kaspars Gerhards on how to assist struggling borrowers. A proposal to impose tax allowances so that loan payments might be covered on the account of individual income tax is among the measures floated.
Asked whether the plan would lead to international court proceedings with banks, Slesers said that the global credit crisis meant tough decisions needed to be made worldwide.
"We will adopt a harsh law and the banks will have to observe the law. Banks will have to invest in Latvia their two billion euros profit earned in the past years rather take it out to Sweden and other Scandinavian countries," he said.
Slesers said that a moratorium should be introduced also to protect Latvian business from collapse.
"If the company has always paid its liabilities in time, but now there are some problems, banks should undertake larger responsibility," he said.
"It seems that banks have decided to earn once more in this difficult time, overtaking companies for a penny, throwing our businessmen out of them, and selling them to the Scandinavians," said Slesers.
Latvia's economy is currently experiencing a major downturn. Unemployment is on the rise and is predicted to reach double-digit figures this year.
