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Wednesday 19.09.2018 | Name days: Verners, Muntis

Economists: banks unlikely to push interest rates below 1%

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RUIt is unlikely in near future, while the state is struggling with the consequences of the economic crisis, Latvia could return to the fat years scenario with banks reducing interest rates on mortgage and consumption credits below 1%.

The main task of banks is to attract financial resources (in the form of deposits or by borrowing in finance markets) and then issuing loans. Thus, the price for which the bank has attracted these means makes up the interest rate offered to the client. Currently, this price is higher than a couple of years ago. However, despite dropping a little amid improving situation in the global and local finance markets, it is unlikely it will fall to the levels of 2006 and 2007, Swedbank Private Financing Division head Dzintars Kalniņš told the business news portal BNN.

Another criterion to affect money price is the client’s creditworthiness in terms of both past liabilities and the current solvency. Five years ago, when the concept of one’s personal credit history was not that popular, borrowers did not have any opportunities to prove their creditworthiness, while now all this information is in the market and risks can be assessed more thoroughly. Similalry, this has a direct impact on the interest rate, Kalnins points out.

Undoubtedly, another condition to affect the interest rates is banks position in terms of Latvian credit market and the toughness of the competition, the expert says.

However,  he doubts return of 2006 and 2007 scenario with 105% loans and competing for the lowest rate.

Speaking about crediting in general, it is important for both each bank and the market to learn from the lessons and keep carrying out responsible crediting, more careful risks assessment and the most suitable solutions for the clients.

Similarly, also Latvijas Krājbanka (Latvian Savings Bank) Credit Risk department head Aivis Ādamsons reveals to the business news portal BNN, while the state is struggling with the consequences of the economic and financial crisis and other EU states, as Ireland, Greece, Spain and Portugal also face financial challenges, the interest rates banks apply could not fall as low as in the fat years.

Asked why such low rates were possible before, Adamsons stresses the previous vision regarding the international finance market, its supervision and safety, was too positive.

Whereas, SEB bank Board Member Ieva Tetere points out the economic situation in Latvia is gradually changing, the country’s credit risk is shrinking and the business environment stabilizing. Thus, in future Latvia could witness the same scenario as Estonia with the interest rates returning back to the pre-crisis levels in certain cases.

However, it should be pointed out here that before the economic downfall banks’ interest rares were lower, while finance market rates – Euribor and Rigibor – considerably higher than today. Consequently, it is possible borrowers’ interest rates can actually turn out to be even smaller than before, she says, stressing that the key factor boosting the process is the economic recovery, stability, arrangement of the business environment and predictability.

The fact the interest rates were that low during the fat years depended on a number of factors, including, too fierce competition among the banks and too positive outlook of the Latvian economic development, Tetere adds.


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  1. olivia says:

    Competition back in those years was crazy.

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