Monday, September 10, 2007

Latvian credit market developments

Latvian economy has experienced fast growth and major inbalances recently (to the point that Latvia is now 1st on the list of countries vulnerable to a financial crisis). This has been largely fueled by large amount of low-interest credit from abroad, most of which has gone into consumption, rather than productive investment.

Latvian-language media have started to break down the role of various banks in this process. This blog post by Gatis Kokins, vice-president of Parex Banka, has a graph of loan portfolio increase for various banks in 2007 vs. increase in deposits by their customers. Two of the Nordic-owned banks (Hansabanka and Nordea) have had loans increasing 4 times as fast as deposits. So, 75% of their borrowing has been financed from abroad.

The print edition of Diena newspaper also has a graph which breaks down the increase in home loans in 2007 by month and bank. There are interesting trends there. Two biggest Scandinavian-owned banks (Hansabanka/Swedbank and SEB Unibanka) have now cut back on lending in a major way. Their loan portfolio increase in July is 3-6 times less than it was in January. Meanwhile, the next two banks (Norwegian owned DnB Nord and Finnish owned Nordea) have increased their lending by about 50%.

When some Nordic-owned banks decides that the Latvian economy is overheating and they should cut back, others view it as a chance to grab a bigger market share. Developing...

1 comment:

hcg said...

Useful information ..I am very happy to read this article..thanks for giving us this useful information. Fantastic walk-through. I appreciate this post.