On the Latvian banks’ problematic loans

25.05.2009
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22.05.2009

Press Release

On the Latvian banks’ problematic loans

In the wake of global financial turmoil in 2008 and deepening of economic downturn in Latvia, the quality of loan portfolio was still in decline at the end of the year. Therefore, to duly perform possible risk analysis, since 3Q 2008 the Financial and Capital Market Commission (FCMC) has been additionally summarizing data on the problem credits, i.e. restructured loans, loans with modified repayment terms, as well as loans in work-out process.

According to data compiled by FCMC already in 3Q 2008, with loan quality deteriorating rapidly, the amount of restructured loans, the loans with modified repayment terms or the loans in work-out process, grew twofold both to legal entities and private individuals.

At the end of March 2009, the amount of such loans in the total Latvian bank loan portfolio accounted for 14.1%, totalling 2.3 billion lats (compared to 10.2% at the end of 2008). Meanwhile the number of problematic loans on the average at the end of March constituted 2.9% of total loans granted, incl. of the loans issued to private individuals, 2.6%, and of loans issued to legal persons, 8%.

Two third of total amount of problematic loans (or 1.5 billion lats) are loans granted to legal persons, but of total problematic loans, 86% are loans issued to physical persons. The average amount of a problematic loan to legal entities amounted to 376.4 thousand lats at the end of March, whereas to physical persons, 22.2 thousand lats.

In 1Q 2009, the total number of problematic loans increased by 12.3 thousand, totalling 38.8 thousand at the end of March, incl. legal persons, 4.1 thousand, but physical persons, 34.7 thousand. Majority of total problematic loans, or 27.8 thousand loans, were in work-out process.

The loans secured with a mortgage constituted the major group of problematic loans (83% of total at the end of March) and the value of loan collateral exceeded the amount of problematic loans 1.7 times on the average (according to data from the banks) and the provisions for these loans on the average amounted to 11 % of the total of problematic loans.

According to bank estimates, the recoverable amount of the loans in work-out process constitutes 80% of loan balance. Considerable 20% provisioning have been made for this loan group.

Ieva Upleja 
Public Relations Adviser
Chairwoman’s Office
Financial and Capital Market Commission
phone: (+371) 6777 4807
e-mail: ieva.upleja@fktk.lv

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