Banks want to lend, but most companies do not qualify for loans / Article / LSM.lv

Banks want to lend, but most companies do not qualify for loansLinda Zalane00:00 / 03:09

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The first half of the year, which was largely affected by the Covid-19 crisis, was stable in the financial sector. The total loan portfolio has increased by 0.9%. Bajāre emphasized that on the one hand it is not much, but considering the situation in which we would live, it is a good achievement. Banks want to lend, but most Latvian companies do not meet the status of a stable borrower. Namely, when evaluating a company as a potential borrower, banks ensure that its financial position is stable, it must have at least 10 – 20% reserve for cash flow, be able to repay the loan principal and equity should be around 25%.

Bajāre pointed out that there are more than 105 thousand companies in Latvia, but 64% of them have a turnover of less than 50 thousand euros per year. Consequently, they can not apply for a bank loan.

About 20% of companies have a turnover of more than 50 thousand euros per year, and only 6% of annual turnover exceeds one million euros per year. Bajāre emphasized that bank lending is also significantly limited by the significant amount of the shadow economy in the country:

“Proceeds of crime account for a very large proportion. Unpaid taxes amount to around EUR 500 million a year and corruption unfortunately also amount to around EUR 500 million a year. Another aspect that should be studied in more depth and solutions found is insolvency efficiency. Unfortunately, 59% of legal entities the process ends with a certificate of lack of property. This is really a very important indicator at the moment when the bank evaluates to whom and what to lend. “

Reinis Rubenis, Chairman of the Board of Swedbank in Latvia and Deputy Chairman of the Council of the Financial Industry Association, also emphasized that now is the right time to apply for loans:

“We banks are in the cycle that we want to lend.

All the historical problems have been worked out, the balance sheets are strong. From the perspective of banks, the problem is the lack of credit. Our portfolio is positive and we want to lend, but the demand side can say that it is at the lowest point in five years. Although speaking and meeting with entrepreneurs, this has been the best year many manufacturers and exporters have had. However, they are all quite cautious, do not borrow and do not plan large investments. “

Rubenis predicted that the Rail Baltica project and European funds that will flow into the Latvian economy to recover from the Covid-19 crisis could stimulate the willingness of our entrepreneurs to invest and develop.

“We talked to macroeconomic experts that there are even risks of overheating in the next two or three years. But I would say so – the outlook is positive, we are on a wave of growth.

The banks have an appetite for credit, and the demand side is slowly returning. Hopefully, the incentives will help keep demand growing. “

A study conducted by the Bank of Latvia in July concluded that Latvian banks have the highest credit rates in the euro area. This may play a role in the long run and slow down the country’s economic recovery. Reinis Rubenis does not agree with this, emphasizing that the bank’s surveys have concluded that the factors hindering the development of manufacturing companies are not so much high credit rates, but labor availability, insufficient classification and demand factor in export markets.

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