The total volume of deposits of undertakings and residents of Latvia after a little outflow in January – February reached a new record — 10.5 billion euro. Over a month deposits of residents grew by 3.6% or by 390 million euro.
But the lion’s share of expansion of deposits was generated by balances on corporate accounts. The rates in the private household segment were rather moderate.
Deposits of undertakings jumped during a month by 5.1%, over the year — by 18.8%. Increase of money on accounts of private households was much more modest — by 0.7% and 6.4% respectively.
You’d think that expansion of deposits on accounts of residents is good. The bad news is that too much money lies idle and does not work in the economics. The undertakings are tired of waiting for lagging European programmes. The politicians can’t wait for proper growth of turnover of the national economics and rising rates of GDP. But the bankers in the period of negative interest rates in the wholesale resource market and on accounts with the central bank miss percentage of profits.
Things have reached the point where representatives of large Scandinavian banks start speaking openly about a possibility to introduce negative interest rates on extra large deposits of high profile customers. Yet a year and a half ago, when the European Central Bank introduced a negative deposit rate for commercial banks, representatives of Latvian credit institutions declared with one voice: our customers would not pay extra for deposits. Now the former assurance does not sound in rhetoric of the bankers. It must be admitted that so far follows a reservation: this trend would not affect depositors with small sums.
But money stays on accounts and the owners do not hurry to channel funds to investments and co-financing of banking credits. As a result – the volume of new loans is insufficient to compensate repayment of old ones. Thus, in February the bank portfolio of loans accommodated to residents of Latvia continued decreasing as to the loans provided to private households and non-financial businesses. Growth was observed only in terms of loans disbursed to non-bank financial institutions.
According to information of the Bank of Latvia, the balance on loans accommodated by the banks to the local undertakings and private households in February reduced by 0.1%: non-financial businesses — by 0.1%, private households — by 0.2%. The balance on loans accommodated to non-financial businesses reduced by 2.2%, but the balance on loans accommodated to private households — by 4%.
Unfortunately, we can very likely forecast that similar trends would be observed also in the future: development of lending and depositing by private households can appear rather moderate also in the subsequent months of 2016.