Lending rates in Latvia are still significantly higher than in the eurozone as a whole, but have tended to decline slightly since the end of 2020, Bank of Latvia Financial Stability Review.
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Interest rates no longer differ significantly from those of other Baltic loans. However, their upside risks have increased again due to higher risk perceptions and changes in the monetary policy stance of global central banks.
The dynamics of corporate lending is still determined by the interaction of supply and demand factors. The corporate lending policies of major credit institutions remain conservative. Insufficient competition in the SME credit market is one of the factors influencing credit conditions (eg credit terms, prices, collateral requirements).
According to the credit survey conducted by credit institutions, lending standards remained stable in 2021 and early 2022, and the number of rejected applications remained almost unchanged. Given the high level of uncertainty as well as rising energy prices, lenders’ caution is likely to increase further. Demand for credit could also decline in this situation.
Business demand for credit remains weak. In the credit survey, credit institutions point to a sustained decline in demand with slight fluctuations in some quarters. The significant increase in corporate deposits also indirectly indicates the waiting position and unwillingness to invest. The rapid rise in energy and other costs may hamper the implementation and lending of investment projects. At the same time, the implementation of the “Next Generation EU” recovery plan could boost lending in the medium term. Lending to weak companies is also affected by several structural factors – shortcomings in the development of the business environment (including the unpredictable state and local government policy in several areas), the capacity of state and local government institutions (including cooperation with the private sector), prevention of the shadow economy, law enforcement system, capital market development, construction sector development, education system and labor market, experts point out.
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