Domestic loan balance slightly up in June
In June, the domestic loan balance rose slightly month-on-month, whereas the year-on-year growth remained negative. As the economic situation improved and competitiveness of Latvian businesses stabilized, the balance of loans granted to non-financial enterprises has grown, adding to confidence in the sustainability of Latvian economic growth and a positive evaluation of the situation also on the part of credit institutions. The balance of loans granted to households, however, continued to drop and no substantial changes can be expected in the near future.
After fluctuating for a number of months, the other monetary indicators also resumed an upward trend, with the deposits attracted and the overall money supply returning to the relatively high level of the previous year.
There was a rather pronounced rise in the demand for cash currency – parallel to the seasonal factor it resulted also from the cash accruals placed with banks returning to the cash currency sector after meeting the requirements of the Law on Declaring the Property Status and Undeclared Income of Natural Persons that stipulated paying cash deposits into an account with a credit institution by 1 June of this year. As a result, cash currency in circulation outside banks increased again, slowing down the rise in household deposits.
The total balance of loans in June rose by 21.1 mil. lats, with the loans granted to non-financial enterprises increasing by 55.9 mil. lats. Lending in lats continued to rise, whereas the rate of annual change in loans, with the indicators of banks that have lost their licences this year excluded, remained in negative territory, reaching -5.6%.
Money indicator M3, which characterizes the amount of cash and non-cash currency in the economy, grew by 1.3% in June, with the domestic overnight deposits increasing by 3.5% and deposits redeemable at notice up 2.1%. The rise in deposits is related to the rise in retail turnover, positive export indicators and the inflows of loans in the accounts of businesses.
The stable rise in money supply observed in June is a reflection of the overall positive atmosphere in the Latvian economy. A small rise could continue in the coming months as well, however, with external risks remaining high, it will not be rapid. Albeit a one-month rise in lending in the existing macroeconomic environment does not signify a stable return to the growth sector, the positive trends will be reinforced by Latvia's convincing moving toward the euro changeover and caution in drafting the 2013 budget.