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Tuesday 16.10.2018 | Name days: Daiga, Dinija

Latvia Finance Ministry: banks irrational lending fear delays EU funds acquisition

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ME Deputy Secretary Andris Liepins

The Ministry of Finance (MF) believes the European Union (EU) fund acquisition in Latvia is delayed by banks’ irrational fear of crediting, while banks emphasize they are ready to talk with both the MF and the Ministry of Economy (ME) about the creation of new support instruments, for instance, additional state guarantees or introducing the mezzanine financing model.

As the ME Deputy Secretary Andris Liepins (Andris Liepiņš) pointed out in the discussion organised by Nozare.lv, one of the reasons why Latvia faces difficulties in EU fund acquisition, is because banks delay co-financing for the approved projects. The Deputy Secretary also stated that over the past three quarters the balance of loans issued to the manufacturing industry, in which the ME has particular interest, has decreased by 15%.

«Although banks claim they have become more proactive; however, the statistics show the volume of granted loans has dropped from approximately 1.15 billion lats last year to about 900 million lats this year. At the conditions of good liquidity and growing deposits there is more money in banks, yet it is issued insufficiently. The most aggravating thing is that the Swedish banks are reducing their market share, which played more active role in lending in 2006 and 2007,» said Liepins.

The MF Deputy Secretary Aleksandrs Antonovs holds a similar view on the issues concerning the EU Structural and Cohesion Fund, indicating that, perhaps, it is due to banks’ irrational fears, similarly as few years ago banks demonstrated irrational boldness to provide loans.

«Within the framework of several programmes, the bank specialists in particular were the ones who set the financial criteria, which the Latvian Investment and Development Agency (LIDA) could not carry out due to lack of resources. Also the Association of Latvian Commercial banks (ALCB) was involved in this work process. Therefore, such criteria were created that facilitated approving projects and allowed the LIDA to conclude agreements. After the conclusion of contract, entrepreneurs had to go to banks with their projects to receive loans, because they had previously gotten a statement from the bank that the particular project will be financed. However, after the project approval at the LIDA, banks suddenly declared they would not finance the project. I do not think that the ME could be blamed for the lack of communication with the businessmen, as industry representatives are involved in the project assessment process,» pointed out Antonovs.

The Head of AS Swedbank State and Municipal Customer Service Department Ilze Kukute informed that during the nine months of this year Swedbank has granted new financing at the extent of 85 million lats, and in response to Liepins question if the credits were issued to residents of Latvia – she specified that from the newly-issued loans 80% or more than 70 million lats was granted specifically to companies.

While, the Head of the ALCB EU Structural Fund Committee and the VAS Latvijas Hipotēku un zemes banka Project Development Department Aleksejs Kanejevs (Aleksejs Kaņējevs) indicated a bank is a huge mechanism which cannot be changed as one wishes; however, the state could fuel this mechanism with support instruments.

«If guarantees, as the support instrument for the new projects funding, are not effective, another instrument should be sought. For instance, France has an operating model where commercial banks fund investments, but provide financial support for the working capital within the framework of the state programmes, and this share is perceived as an enterprise capital, which is a type of mezzanine financing, namely, something between a venture capital investment and loan. However, it is possible to restructure this loan at a company by means of state-monitored instruments. Currently, there is a gap between the risk capital and standard bank loans. Yet the mezzanine financing could be the solution,» emphasized Kanejevs, while Liepins also pointed out that mezzanine funding is one of the instruments that could be introduced.

Kukute drew emphasis to the fact that banks are prepared to talk with the ME about how to supplement the support instruments, while Liepins pointed that the corporate strategies of «the four great» banks – Swedbank, AS SEB banka, AS Nordea banka and AS DnB Nord banka– are not drafted for their subsidiaries in Latvia; consequently, the government will have to communicate with Scandinavian banks parent companies more actively regarding ways how to solve the issue of the lending problems.

As reported previously, Latvia falls behind from its set aims of the EU fund acquisition, paying out only about 30% in the eight months of 2010 of the whole intended financing volume of this year, indicated the MF report.

Overall, until August 31, the EU fund projects were approved at the extent of 1.963 billion lats or 61.7% of the EU fund financing. Agreements for 1.85 billion lats have already been concluded, and the financing receivers were paid 611 million lats or 19.2% of the available EU funding.

According to the MF estimates, currently there are concerns that 73 million lats will not be acquired this year, of which 40 million lats were scheduled for the programmes managed by the Ministry of Economy; therefore, it was suggested that the financing should be reallocated.

The government supported 34 million lats reallocation for the programmes under the Ministry of Transport responsibility, while additional 18 million lats will be directed to the Ministry of Environment. Additional funding will be also channelled to several programmes managed by other ministries.


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