The invisible handbrake of the Latvian economy is critically low lending. The lag behind other Baltic countries in lending is measured in billions, available statistics indicate.
The total credit portfolio of banks and non-bank lenders in Latvia currently stands at €18.9 billion. Of this, €16.6 billion is financing provided by commercial banks, while the credit portfolio of other lending organizations, including bank subsidiaries (mainly leasing subsidiaries of banks), amounts to €1.3 billion, or just 7% of the total. Initially, these figures may seem significant; however, the dynamics of lending and comparisons with neighboring countries reveal a completely different picture.
Since 2016 - that is, over ten years, despite significant growth in salaries and incomes, as well as an increase in the creditworthiness of enterprises and households - the total credit portfolio of banks and non-bank lenders in Latvia has grown by only about €1 billion, barely exceeding the €18 billion mark. Meanwhile, in Lithuania, the credit portfolio has doubled during this period to €37.5 billion, and in Estonia, despite having significantly fewer residents, it reached €26.5 billion.
Finance Minister Arvils Ašeradens, assessing the current situation, acknowledges that the financial system is stable, but there remains significant untapped potential. Compared to other European countries, the lending rate is also critically low. According to Eurostat, in 2024, the total liabilities of the private sector in Latvia were around 55% of GDP, while the average in the European Union reached 123%.
For Latvia to reach the EU average, the total credit portfolio of the private sector banks and non-banks must increase more than twofold, or by about another €22 billion. This means that enterprises often lack financing for acquiring new equipment, automating processes, developing exports, and enhancing competitiveness. At the household level, this results in less new and updated housing, greater lag in energy efficiency of housing compared to neighboring countries, lower mobility, and overall less cash flow in the economy. The weakness of Latvian lending is not only a matter of demand. It is also a question of accessibility, pricing, speed of processes, and market structure.
