The Growth in Loans is Not the Result of The Increase in Payments For Public Utilities

  • 2022-12-12

The reason for the increase in the number of loans granted during the last half-year compared to the previous year is related to the recovery of the financial sector after COVID-19 as such, not the increase in payments for public utilities. Considering that payments for public utilities have only increased as late as October and November after the heating season began, it would be wrong to claim that the volume of loans granted and payments for public utilities are correlated. At the same time, it is important to focus on the evaluation of solvency and the client's ability to repay loans. 

During the pandemic, a number of sectors, including the consumer lending sector, slowed down, but now they are gradually recovering. It is only natural that during COVID-19 the number of consumer loans decreased. Now this number compared to the data of the first half of the last year according to CRPC data has increased — the number of transactions has increased by 6 %, the amount by 19 %. Observations of the members of Fintech Latvia Association indicate that the growth in the number of loans cannot be attributed solely to the rising cost of living. In addition, data for the second half of the year is not available yet, therefore we cannot draw fully substantiated conclusions about the period, in which after the beginning of the heating season payments for public utilities are the highest.

 “We will be able to draw conclusions about the impact of the increase in the price of energy on the number of loans granted later when we analyse the report for the next half of the year. However, assuming that with the rising cost of living consumers could show greater interest in credit services presently, we have called upon enterprises and associations of the industry to focus on solvency evaluation criteria, reduce risk appetite and cooperate with consumers in difficulties. We advise refraining from using lending offers to cover payments for public utilities or other payments and debts. Consumers need to review their ability to repay the loan and exercise particular caution in assuming liabilities, in addition, if the loan is secured by a real estate collateral the consumer could lose his dwelling sooner in the event of default than in the case of default on other loan agreements. We also pay careful attention to the supervision of the ban on advertising of crediting services, including supervision of covert consumer crediting services advertising as a part of the advertising of crediting services for economic operators, and also aim to prevent the promotion of irresponsible borrowing by the permitted types of advertising”, stresses Andis Prieditis (Andis Priedītis), CRPC Consumer Rights Supervision Department Deputy Director. 

“Recovery of the entire industry is the main factor for the increase in the number of consumer loans this year. A similar trend is visible not only in Latvia but also elsewhere in Europe. In addition, we receive the first bills for the heating season only in October and November, therefore the claim that the increase in the prices of public utilities is the main factor that has furthered the increase of the number of loans granted during the last half of the year is not based in facts. Understanding the current challenging circumstances and taking into consideration the rise in the cost of living members of the association have emphasized the necessity for the enterprises in the industry to focus particularly on the evaluation of solvency, the client's ability to repay the loan at the time a loan is granted. Raising public awareness about the evaluation of one's financial situation and borrowing capacity is important in these circumstances. This already constitutes a substantial part of the public communication of the members of the association”, tells the head of Fintech Latvia Association Tina Luse (Tīna Lūse).

As a result of global inflation and the rapid increase in the prices of energy, there is pressure on financial welfare, and that could create a need for additional financing to cover one's needs. Fintech Latvia Association calls upon consumers not only to evaluate their ability to repay the borrowed funds but also the possibility to solve their problems by other means before deciding to use crediting services. 

Like CRPC the association encourages consumers to refrain from using loans to pay for public utilities or cover other payments. Members of Fintech Latvia Association have also prepared recommendations about reducing the financial burden during the heating season: 

About Fintech Latvia Association:

The association was established in 2010, Tina Luse is the head of the association since the beginning of 2021. Presently the association has 16 active members — financial technology companies and financial service providers of Latvia.