There is no reason to blame only banks or only entrepreneurs for insufficient lending by banks - Kazaks

  • 2020-10-26
  • LETA/TBT Staff

RIGA - There is no reason to blame only banks or only entrepreneurs for insufficient lending by banks, the president of the Bank of Latvia, Martins Kazaks, told LETA.

"There is no one silver bullet to solve this problem. Therefore, the main task is for the whole sector to come together, find weaknesses, correct them and then the economy can expect much faster growth in lending. There is no reason to blame only banks or only entrepreneurs," Kazaks said.

He also expressed hope that the next business cycle, when the economy resumes growth, will have much more lending support than it has so far.

"It is not that banks in Latvia are not lending. Some of the large banks have shown a positive growth in lending in recent years. But total lending has grown much more slowly than the economy as a whole, and the overall share of loans in the economy has declined. To a large extent, this is also due to the fact that one big player has made structural changes in its operations in all Baltic countries. At some point, this has reduced the amount of lending, but hopefully these structural changes will conclude and this big player will also start lending," said Kazaks.

He mentioned that the Bank of Latvia's specialists, together with colleagues in other central banks of the Baltic States, are trying to understand the differences between the countries - where is lending more successful, where it is less and how it affects the economy, and what can be done to make increase lending.

The president of the Bank of Latvia pointed out that in discussions with banks, which take place regularly on the issue of lending, it has been concluded that the first positive signs are beginning to emerge from the amendments to the law on non-taxation of reinvested earnings adopted in previous years.

"Gradually, the business segment is getting richer in capital, so these companies can also start lending. But this story is neither quick nor easy. It is also a question of the law, ie if a company goes bankrupt, what can a lender recover from the company. These amounts, unfortunately, they are very small, and in most cases the cost of recovery itself is higher than what can be recovered," said Kazaks.

He added that competition within the banking sector itself is also important in this matter.