Latvian Corporate Credit Growth Slows Relative to Eurozone

Latvia Slips in Eurozone Lending Rankings

Latvian corporate credit growth is slowing down relative to the broader eurozone, dropping from fourth to sixth place across the monetary union within a single month, according to data cited by the Latvian business newspaper based on figures from the Finance Sector Association (FNA) and the Bank of Latvia. While corporate loan portfolios expanded faster in Latvia than the eurozone average during the twelve months leading up to August, the monthly pace reveals a cooling trend that industry leaders say requires policy adjustments.

Corporate credit portfolios across the eurozone expanded by 4.2% in the year up to the end of August, while housing loan portfolios grew by 3.0%. Latvia outperformed these regional averages on an annual basis, yet its monthly standing shifted. In July, Latvia held fourth place in the eurozone for annual corporate credit growth, but slipped to sixth place by August. FNA notes that this deceleration proves the previous expansion pace cannot be treated as a permanent baseline.

Corporate Loan Issuance Rises by 12.2 Percent

Despite the slowing annual momentum, fresh capital injections remain active. Bank of Latvia data shows that newly issued corporate loans during the first eight months of the year rose by 12.2% compared to the same period in the previous year. This indicates that corporate demand for outside financing is strong and commercial lenders are still backing client investment pipelines.

Regulatory Pressures and Tax Burdens

Industry stakeholders point to specific regulatory burdens as a primary friction point for domestic lending growth. FNA has repeatedly warned policymakers that the special solidarity tax applied exclusively to banks damages Latvia’s long-term competitiveness against neighboring Baltic states and increases payment burdens for financial consumers.

Uldis Cērps, chairman of the board at FNA, stated that given the moderate profitability of banks and the normalization of European Central Bank interest rates, maintaining an extra tax levy on the financial sector lacks objective justification. FNA has formally asked the government to repeal the bank solidarity tax starting in 2027 to free up capital for lending and restore regional competitiveness.

Housing Loan Portfolios Expand Despite Rate Hikes

Meanwhile, the European Central Bank raised refinancing rates by 25 basis points on both June 11 and September 10. Even with these monetary adjustments, borrowing costs remain below the peaks observed in the immediate aftermath of the Covid-19 pandemic.

Household lending mirrors this resilience, with housing loan portfolios expanding by 9.2% over the year. Bank of Latvia figures show that new housing loans issued to households in the first eight months of the year climbed 11.7% above the volume recorded during the same period in the prior year, supported by rising personal incomes and steady transactional activity in the residential real estate market.