Latvia’s corporate credit portfolio expanded at a faster pace than the eurozone average through August, though growth momentum is now steadily decelerating. Total business loans across the eurozone grew by 4.2% in the 12 months leading up to the end of August, according to data cited by the Finance Latvia Association (FNA).
Latvia ranked fourth across the eurozone in annual corporate lending growth in July. By August, the country slipped to sixth place.
The Finanšu nozares asociācija attributes part of this deceleration to the ongoing impact of the bank solidarity tax. The association argues that this levy weakens long-term competitiveness within the Baltic region and adds extra payment pressure onto commercial bank clients.
New Business and Housing Loan Volumes Rise
Fresh data from Latvijas Banka shows that newly issued corporate loans during the first eight months of the year rose 12.2% compared to the same period last year. This points to active corporate demand for external financing as commercial banks continue to co-fund client investment projects.
Household lending displays a similar upward trajectory. The domestic housing credit portfolio increased by 9.2% over a 12-month period. Newly disbursed housing loans to households during the first eight months of the year climbed 11.7% higher than the corresponding period the year prior, fueled by rising household incomes and active residential property market transactions.
European Central Bank Rate Adjustments Shape Borrowing Costs
The European Central Bank raised its refinancing rates by 25 basis points on two separate occasions—June 11 and September 10. Even with these monetary adjustments, current borrowing rates remain below peak levels recorded in the aftermath of the Covid-19 pandemic.
FNA Chairman Uldis Cērps noted that future corporate lending depends heavily on corporate willingness to invest alongside government economic, tax, and security policies.
“Given the banks’ current moderate profitability and the normalization of interest rates set by the ECB, there are a lack of objective arguments for maintaining an additional tax burden on the financial sector,” Cērps stated.
Timeline of Next Policy Decisions
The Finance Latvia Association has officially urged the Latvian government to repeal the sector-specific bank solidarity tax starting in 2027. Industry advocates maintain that removing the tax will free up capital for lending and restore competitive parity with neighboring Baltic markets.
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