Financial means available to businesses on the rise

A substantial rise in the deposits by non-financial businesses was observed in October, determining a rise in total money supply. The demand for cash currency meanwhile dropped somewhat. The total domestic loan portfolio remained almost unchanged, with the loans granted to domestic non-financial enterprises continuing to rise and household liabilities dropping.

The rise in the financial means of businesses and the continuing impressive output and export indicators encouraged banks to continue the rise in lending in the business sector. In October the balance of loans granted to non-financial enterprises grew by another 20.5 mil. lats, and in the last seven months, the loan portfolio of enterprises has grown already by 166.9 mil. lats. The rate of annual change, excluding the indicators of banks that have lost licences from the base, improved to minus 2.5%.

Money indicator M3, which is used to characterize the amount of cash and non-cash currency in the economy grew 0.7% in October as  domestic overnight deposits and deposits redeemable at notice both increased. The amount of cash currency in circulation dropped somewhat and the amount of term deposits dropped quite substantially pointing to a shift to using banks for settlements as opposed to longer-term deposits. An improvement in consumer confidence and a rise in private consumption promoted an increase in business deposits with banks by 95.8 mil. lats, whereas household deposits grew by a mere 5.0 mil. lats.

The total amount of household deposits in recent months has again dropped under the highest post-crisis level reached in the middle of the year, which was related to a certain caution regarding making larger purchases in the first half of the year. The deposit dynamic of households in September-October points more to a faster spending of money with an accordingly positive effect on economic growth. However, as we have mentioned before, such an increase in spending at the expense of deposits cannot promote economic growth in the longer term.

October was marked by overall positive trends, which we can expect to continue in the coming months, only at the turn of the year the changes in indicators could be more pronounced for seasonal reasons. The positive development of the domestic economy and rise in exports, particularly if the external risks referred to for quite a while now do not come to pass, will promote a further rise in business deposits, which, in turn, will gradually foster the formation of household deposits. The demand for cash currency, after a seasonal rise of the end of the year, will drop substantially over the next year because, after the final decision to join the euro area is adopted, a substantial part of cash lats is bound to supplement household (and, to a lesser extent, business) deposits with banks. 

APA: Purviņš, V. (2020, 30. nov.). Financial means available to businesses on the rise. Taken from https://www.macroeconomics.lv/node/2170
MLA: Purviņš, Vilnis. "Financial means available to businesses on the rise" www.macroeconomics.lv. Tīmeklis. 30.11.2020. <https://www.macroeconomics.lv/node/2170>.

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