Monday, October 29, 2007

September Latvian credit market numbers

The numbers on Latvian home loans for September 2007 have been published and they confirm the trend observed in my previous post. In September, Latvian banks issued 64.9 mln lats of new home loans, 19.5% less than in August and less than a half of what the monthly amount used to be up to June 2007 (140-170 mln lats per month):People in real estate business are already complaining and referring to government's anti-inflation plan as "home construction industry destruction plan". I think the decrease is mainly due to management decisions by Latvian banks (which must be under a strong pressure to decrease lending, after all the negative information about Latvia in international financial press) rather than the anti-inflation plan. But decreasing the amount of new loans by a half can be devastating to the construction industry, no matter what the causes of this decrease are.

Also, if the trend continues, expect a strong slowdown in the rest of Latvian economy. Decreasing the available credit this quickly, by so much, has to have a strong impact. A substantial fall in home prices (beyond the 14% decline that has already occured) and an impact on a lot of other things, as well.

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