RIGA - A bad balance has emerged in the banking sector which, despite weak lending to businesses and significantly higher interest rates than elsewhere in Europe, has been maintaining high profitability, Janis Endzins, board chairman of the Latvian Chamber of Commerce and Industry (LCII), told LETA.
The LCII board chairman believes that the problem might partly be solved as the banks lower their interest rates. At the same time, Endzins admitted that it is not clear when this might happen, adding that the rate cut may not be the solution to the basic problem, which is weak lending.
Endzins proposes at least three possible solutions that might improve the situation. "In theory, the most effective way would be to stimulate and toughen competition in the banking sector, but that is a difficult task," Endzins said.
Another solution would be to achieve a situation where the financial crisis of 2008-2010 is no longer included in today's lending rates.
Thirdly, seeing that businesses' overall capitalization has improved, Endziņš believes that the 0 percent corporate tax rate on reinvestments should not be abolished under any circumstances.
As reported, banks in Latvia have been urged to work on preparing favorable conditions for increasing lending, representatives of the Ministry of Finance told LETA, informing about the decisions taken at the meeting of the Financial Sector Development Council.