Business loan availability in Latvia
The decline of issued amount of business loans has to have more than one simple reason. One of the factors is the caution of the lending policy that contrasts the excessive lending aggression during the pre-crisis period. In 2006-2008 the lending guidelines of the commercial banks were so loose that bank loans were competing even with venture capital. What is more, a substantial impact is also from portfolio “restructuration” – loans for less desirable sectors such as construction and real estate are replaced with other sectors like agriculture. As a side effect to the slowdown of bank lending is also the low deposit rates. This means that the commercial banks do not see many investment opportunities in the market (both types – loans and investments in financial markets) and therefore the banks do not need to attract new capital (i.e. deposits).
The situation when it is hard for enterprises to attract bank financing creates positive environment for non-banking sectors like development of microloans. Even though in Eastern Europe micro lending for businesses takes a stable and substantial proportion from the overall issued loan amount, in Latvia and the rest of the Baltics this sector has developed only during the few past years. As for example micro lending company Capitalia that operates in the market only since year 2010 has already issued over 300 business loans in the Baltic States and more than 200 loans only for last year. The number is equal to the average loan amount issued by Latvian commercial banks, which indicates substantial unmet demand for the particular loan type.
In this situation state can take an active accelerator role to stimulate additional business financing in Latvian economy. Currently the Latvian Guarantee Agency (LGA) is undertaking the main related activities: export guarantees, venture capital, mezzanine and micro lending (anticipated) programs. But taking into account the poor interest of banks to increase business loan portfolio size, LGA would have to intensify the undertaken actions.