We should think about use of wider opportunities for development of lending, including involvement of banks from other countries - Kazaks

  • 2023-04-21
  • LETA/TBT Staff

RIGA - In order to develop lending, it is necessary to think about the use of wider opportunities, including the involvement of banks from other countries in the Latvian and Baltic market, noted Martins Kazaks, president of the Bank of Latvia, in an interview with LETA.

He pointed out that there are not only four big banks in Latvia, but also a number of small banks that have changed their business model, and many of them see their future directly in lending to the Latvian economy, which is good, but they are still small and their influence on the market as a whole is small and changes will take many years.

"Consequently, further consolidation of this sector would also be good for the Latvian economy, because then these banks would become bigger, more powerful, with a larger market share and the ability to make the overall result better. If these banks are not enough, we are looking at opportunities to attract other market players, which would help to quickly change the situation," Kazaks said.

He added that this means, for example, the entry of banks from other countries into the Latvian and Baltic market, because Latvia's situation is not unique - the same and a worse situation in certain segments can also be observed in Lithuania.

"This is purely a negotiation process. It has been done before, but unfortunately both the pandemic and the Russian invasion of Ukraine have weakened this desire, as instability has increased both in the region and in the world economy. As everything gradually calms down, I think there is a chance return to negotiations, and that is what we will do," Kazaks said.

At the same time, the president of the Bank of Latvia noted that he has high hopes for the existing market players.

Kazaks also emphasized that as the existing banks become more active, everyone will benefit.

Asked whether anyone is interested in operating in the Baltics, the president of the Bank of Latvia stated that with the profitability of banks that are currently well above the average level of the European Union, there will already be interested parties.

"Furthermore, no one has to come here with a bag of money, build a big building and open a series of branches in order to start providing services. It is also possible to provide cross-border services within the framework of the European Union and the Eurozone. We already see this in Lithuania, where banks apply for large-scale projects, but on a daily basis are not represented in Lithuania. Consequently, the solutions are very different," explained Kazaks.

He assumed that the newly formed bank of the investment management company Indexo can also move the market. "This is one of the factors that can shake up the situation. The bank has currently submitted their documents, they are being evaluated, and it will take some time until the permits are received and the bank will start working and build its market capacity. This will be good for the Latvian economy. But is that why we need to wait? In my opinion, no," said Kazaks.

He noted that banks are the main financier of the economy, but by no means the only one - significant growth potential is also in the broader development of the financial market, for example, the stock exchange is important, where both shares and bonds can be issued. Also, banks are a very important element and partner of the economy, but this alone is not enough, and if we want to achieve a truly excellent result, other institutions must also be involved. For example, one of Latvia's untapped potentials is the insulation of buildings, and therefore we were also hit hard by the increase in the price of energy resources, he said.

According to Kazaks, one of the reasons why very few buildings have been insulated in previous years is also the expensive and complicated administrative process. "The banks here are absolutely right when they say - let's fix this process, and it will open up more opportunities for lending. This should also be done," he said.

The president of the Bank of Latvia pointed out that the shadow economy is also not good. "If we have companies in which it is not clear about what is in their "belly", if there are companies that live with negative capital for years and lose money, then how can we imagine lending to such companies?" Kazaks said.