The amount of deposits on accounts with Latvian banks continued to grow. However, an urgent problem remains: where to place them. Neither enterprises nor households are in a hurry for loans.
This is not to say that new loans are not issued. However, they are still insufficient to compensate for the repaid loans.
In the household sector, such obstacles remain as not very high incomes of a significant part of Latvians as well as credit liabilities undertaken even yet in the “fat” years.
In the enterprise sector, the negative factor is a prolonged waiting for opening of a new period of EU funds planning.
Besides, an appreciable share of the gray zone in economy, which prevents the both groups of potential borrowers from applying for loans. As a result, their share in the structure of assets in the banking sector of Latvia is reducing.
As a result of the above factors, the credit portfolio of the banking sector within a year remained practically unchanged, having only increased by 0.1% from late 2014 to the end of 2015.
The positive result for 12 months was achieved thanks largely to the non-resident loan segment. This portfolio put on weight by 9.9%. However, a significant contribution to this figure was made
by fluctuations of euro/dollar exchange rate rather than the activity of banks and their clients.
The portfolio of loans granted to residents demonstrated a more predictable behaviour, steadily decreasing from quarter to quarter. Balance of loans issued to Latvia’s national economy has decreased over the year by 0.3%.
Among major industries, the biggest reduction of credit portfolio was observed in construction (-4.6%), wholesale and retail trade (-4.5%), real estate operations (-3.4%).
In the household sector, the loans balance continued to decline steadily. During the year, it decreased by 4.2%. Housing loans programme with the state guarantee for families with children was not able to change the overall trend, though without it the situation would be even sadder.
And what about bank deposits? Despite zero or practically zero interest rates on deposits, Latvian banks continue to wallow in resources. The balance on deposits for the year increased by 4.8% - up to 23.256 billion euros. Growth in the segment of households and private non-financial enterprises (residents) was 6.4% and 10.3%, respectively. In total, 10.838 billion euros were attracted in the resident segment, or 46.6% of total deposit amount in Latvian banking sector.
The amount of funds raised from non-residents is strongly dependent on fluctuations of euro/dollar exchange rate since the lion’s share of international clients’ deposits in Latvian banks are denominated in dollars. Thus in December, the weakening of US currency entailed a reduction in the book value of funds raised in this segment. But in general, the currency factor effect was positive for the year.
At the end of December 2015, the balance of non-resident deposits in Latvian banking sector amounted to 12.417 billion euros, having increased for 12 months by 8.3%. In general, the nonresident share (53%) is made up by the funds of clients from the European Economic Area (18%), CIS (9.2%) and other countries (26.2%).