RIGA - Hansabanka said it expected a gradual reduction of loan rates after Latvia's
accession to the EU but warned that rates may go up, if the Baltic state
chooses to remain outside the EU.
Hansabanka President Ingrida Bluma told the press that the rate to be added
to LIBOR could shrink to half by 2015 to 1.4 percent from the current 3
percent.
Bank loan rates will fall because of growing competition, lower capital
sufficiency requirements and also lower national risk. This will be to the
benefit of bank clients, who will get higher quality service and cheaper
loans, according to Hansabanka.
Bluma explained that bank loan rates in Latvia already were comparatively
low because banks had reckoned with Latvia joining the EU.
Although lending has developed rapidly, there remains much room for growth
in Latvia. According to Hansabanka, the ratio of loan portfolio against GDP
was 136 percent in euro-zone countries in 2001 while in Latvia this figure
was 31 percent, rising to 41 percent in 2002.
At the end of last year, Latvian banks had issued loans for a total of 2.1
billion lats (3.25 billion euros). Hansabanka expects total lending to grow
to 4 billion lats or 57 percent of GDP by 2005.
Bank of Latvian President Ilmars Rimsevics told the press that loan rates in
Latvia were comparatively low and lending was growing fast ‹ by more than 40
percent for loans to residents in the last three months.
Theoretically, such a steep rise of lending should push rates up in view of
limited finances but in Latvia this was prevented by the opportunity banks
had to borrow on foreign financial markets, often from parent banks.
This possibility was restricted, however, and upon further rapid growth of
lending domestic rates might grow even without direct interference from the
central bank.
Moreover, low rates in the EU and the United States remain likely to grow
sooner or later, bringing about a gradual elevation of rates in Latvia,
according to Rimsevics. He added, however, that this could begin no earlier
than next year.
Latvia will hold a referendum on EU accession on Sept. 20 and in case of an
affirmative outcome the Baltic state will become a member of the union in
May 2004.
