President urges to analyze factors deterring banks from more active lending

RIGA - It is necessary to analyze factors that are deterring banks from lending more actively, President Egils Levits said while meeting with Bank of Latvia Governor Martins Kazaks on Monday. 

Presidential spokeswoman Elina Kresa informed LETA that Kazaks and Levits discussed the low lending activity of Latvia's commercial banks and its negative impact on the national economy. 

The president noted that the issue of weak lending and high interest rates in Latvia has been discussed on many occasions but that now the time has come to take action. Levits believes that given the profit they have been making, Latvia's commercial banks are able to successfully manage and take risks. This would benefit not only the Latvian economy and businesses, but also the banks themselves and the financial sector in general. If the situation does not change in the near term, the government will have to consider a solidarity tax on banks, Levits said.

The Bank of Latvia governor indicated that the banks' loan portfolio has significantly decreased relative to the economy. Since 2009, Latvia's domestic loans to GDP ratio has reduced nearly three times to 36 percent in September 2022 and is now the second lowest in the eurozone. 

During the conversation, the president and the head of the central bank noted a significant potential for lending. They also pointed out that in recent years the state has been significantly supporting both businesses and households, helping hem to overcome the problems caused by the pandemic and high energy prices, thereby ensuring also the liquidity of the commercial banks' clients. The government therefore expects the banks take a more active part in financing the Latvian economy, including by lending in regions. The Latvian commercial banks' profit should be reflected in a healthier financing of the economy, said Kazaks.

During their meeting, the Bank of Latvia governor and the Latvian president turned their attention to funding available to Latvia from the European Union's Recovery and Resilience Facility and the obstacles preventing its absorption. The Bank of Latvia warns that Latvia can lose around EUR 300 worth of investment due to some sectors' insufficient capacity. If the problem is realized today, it can still be reversed, the officials said.