The Bank of Latvia will discuss the availability of financial services in the regions with local government leaders and entrepreneurs

The Bank of Latvia will meet with the management of local governments of Latvia’s regions and local entrepreneurs to discuss issues related to the growth of the national economy and the availability of financial services in the regions, including the situation in housing lending. During the regional meetings, the Bank of Latvia will present its latest analysis on access to finance, especially in the regions, listen to the opinions of local leaders on the practical experience of receiving financial services and discuss the steps to be taken to improve the situation, i.e. see from the point of view of regional entrepreneurs and residents.

The first meeting with representatives of local governments and entrepreneurs of the Zemgale region is planned for May 24 in Jelgava, at the competence development center of the Zemgale region at Svētes street 33. The President of the Bank of Latvia will participate in it Mārtiņš Kazāksvice president Santa PurgaileHead of the Research Department of the Monetary Policy Board Karl Willert and the head of the Money Laundering Prevention Authority Kristaps Markovskis.

The availability of financial services is the priority of the Bank of Latvia this year, so the work is going on in several directions. The Bank of Latvia has prepared and is implementing a plan of measures to promote the operation of an honest customer-friendly banking sector. The plan includes monitoring activities, different types of support and dialogue activities, as well as regulatory simplification where possible. In addition, the Bank of Latvia has analyzed various aspects of the availability of financing and taken a series of measures to ensure that the new economic cycle is used as fully as possible.

The analysis carried out by the Bank of Latvia shows that at the end of 2023, the portfolio of housing loans made up only 12% of GDP. However, the situation in Latvian municipalities is far from uniform. The balance of housing loans issued in the municipalities of Pieriga is close to the average indicators of the Eurozone and corresponds to approximately 35% of the GDP of the region, but in Riga it is significantly lower – only 11% of the GDP of the capital.

A relatively high level of housing lending activity can be seen in counties that are geographically close to Riga – in Ogre, Saulkrasti and Jelgava counties and in Jelgava itself – there the balance of housing loans ranges from 12% to 33% of GDP. However, in no other Latvian municipality do housing loans exceed 10% of the municipality’s GDP. This also applies to national cities. In Liepaja, Ventspils and Valmiera, the balance of housing loans is approximately 7% of the respective cities’ GDP, while in Daugavpils, Rēzekne and Jēkabpils – 1–3% of GDP. In general, in more than a third of Latvian municipalities, the balance of housing loans does not exceed 3% of the municipality’s GDP.

Analyzing the situation, the Bank of Latvia has concluded that one of the reasons for weak housing lending activity in the regions is related to the limited availability of loans for relatively small transactions with real estate. Publicly available information also shows that commercial banks do not issue loans secured by real estate pledge below a certain amount (around 15-20 thousand euros). Namely, if the real estate costs less than 25 thousand euros and the down payment is 20%, the possibilities of getting a standard home loan are limited. This has a significant impact on credit availability in regions where real estate prices are lower on average. The results of the econometric analysis also show that the lending activity in most Latvian municipalities is lower than would be expected, taking into account their economic situation and other factors affecting lending.

In order to improve the situation, it is necessary to create a small-scale secured loan program for the purchase of real estate. It would eliminate the market imperfection by improving credit availability in the regions and at the same time maintaining the market for real estate unsecured loans for repairs and other purposes. Latvijas Banka has discussed a possible solution with JSC “Attīstības finanţi institucija Altum”, which will continue work in the area of ​​its competence, while we will evaluate the possibilities of local government solutions in discussions with local government leaders.

A meeting of the Vidzeme region is planned in Cēsis on May 30, in Kurzeme, Kuldīga on June 21, and in Latgale on July 12.

Entrepreneurs from the Zemgale region who wish to participate are invited to register here by May 16: https://www.mittoevents.com/jelgava-rs/ielugumu-forma.

The number of visitors is limited, so please make sure that you have received confirmation of participation before arriving. The Bank of Latvia organizes the meeting in cooperation with the Zemgale Business Center of the Zemgale planning region and the municipality of Jelgava state city.

Phone for additional information on participation in discussions: 29297272