Money supply diminished by annulling "Parex Banka" licence

The money supply shrank in March primarily for formal reasons. On 15 March, the Finance and Capital Market Commission annulled the credit institution licence granted to "Parex Banka" and allowed the bank to reorganize registering as a commercial association whose business does not involve credit institution operations. As a result, the "Parex Banka" indicators were excluded in March from the summary data of the monetary financial institutions, bringing down the level of main monetary indicators.  The amount of total money supply thus dropped under the relatively high level of the last three months. The drop in the balance of loans granted was more rapid while the drop in the balance of deposits was relatively small.

The loan balance in March dropped 4.5%, however, the effect of the reduced number of banks excluded, the drop in the loan portfolio amounted to only 0.5%, and the loans granted in lats increased. The rate of the annual drop in banks' loan portfolio also worsened formally to -11.0%, however, adjusting it on the basis of the above changes, the rate of annual drop decreased by 0.2 percentage points, reaching -7.5%. 

Money indicator M3, which characterizes the amount of cash and non-cash currency in the economy, dropped by 2.0% in March, with the M3 annual drop rate at 0.1%. The balance of  deposits attracted by banks dropped 1.2% in March, on account of deposits by businesses and household both in lats and foreign currencies.

The above structural changes are excluded invites the conclusion that the money supply in March changed little: the demand for cash currency and the level of household deposits were stable, the balance of business deposits and the amount of loans have undergone a moderate drop.  Albeit the mood of the population is not negative overall and domestic consumption could develop also on account of renewed lending, the unclear prospects of the external markets and the high costs of energy resources mostly cancel a more optimistic view of the future. As a result, the loan balance will continue to drop in the coming months as well, with new loans trailing the amount of repaid loans. Deposits are likely to continue to stagnate slightly year-on-year in the coming months, for the growth prospects of the economy, despite the growth still observed in most branches, will not provide for increased accruals either by households or businesses.