Revival of lending remains slow
Contrary to the notable increase in loans to households observed in May, the expansion of the household loan portfolio, comprising both loans for house purchase and consumer credits, decelerated again in June. At the same time, with individual banks granting large new loans to enterprises, both the corporate loan portfolio and the total domestic loans increased. In June, the total amount of domestic deposits also grew on account of a strong rise in household deposits.
In June, the annual rate of decrease in the domestic loan portfolio improved to reach –2.9%; excluding the transfer of part of the loan portfolio of Nordea Bank Finland Plc to its parent bank outside Latvia, the domestic loan portfolio grew by 1.5% year-on-year. The annual decrease ratio of the loan portfolio of non-financial corporations reached –9.3% (excluding the above impact, the ratio amounted to –0.3%), while the annual rate of change in the household loan portfolio stood at –0.4%. In June, new loans to non-financial corporations reached almost double the volume recorded in June of the previous year. Meanwhile, new loans to households exceeded the indicators of the corresponding period of the previous year for the third consecutive month, while lagging behind the level observed in May 2018.
In June, domestic bank deposits grew by 0.5%, with deposits of non-financial corporations shrinking by 0.5% and household deposits increasing by 1.9%; consequently, the annual rate of growth stood at 1.3% and 8.9% respectively.
Latvia's contribution to the monetary aggregate M3 of the euro area expanded by 0.4% in June, with its annual growth rate standing at 5.1%. Within a month, overnight deposits of euro area residents with Latvia's monetary financial institutions grew by 0.8%, deposits redeemable at notice increased by 0.3%, while deposits with an agreed maturity of up to 2 years declined by 3.2%.
The annual rate of change in domestic loans (%)
* For the purpose of comparability, the one-off effect caused by the transfer of part of the loan portfolio of Nordea Bank Finland Plc to its parent bank is excluded as of September 2017.
As expected, the revival of lending to households continues, albeit at a very moderate pace which is likely to be subdued in the future as well. Uncertainty surrounding the corporate lending growth forecasts persists, since granting individual large loans in some months, e.g. in June, may expand the portfolio, whereas their settling may reduce it respectively. The results of the bank lending survey conducted at the end of June do not provide clarity either: three of the four surveyed banks believe that the demand for loans to enterprises will expand slightly in the third quarter, only two banks expect an increased demand for loans for house purchase, whereas one bank expects a higher demand for consumer credit.