Retail lending is the process of issuing bank and non-bank loans to individuals. It should be noted that bank and non-bank lenders are engaged in lending to individuals and legal entities .
Total amount of loans granted has increased
Despite the fact that the total amount of loans granted has increased, the amount of loans granted to individuals has nevertheless decreased and continues to decline. This situation can be explained by the rise in unemployment in Latvia and the decrease in incomes, as a result of which people start to evaluate their ability to borrow and repay it more carefully, so for the most part, for logical reasons, they choose not to borrow. It has to be concluded that if the personal financial situation of the population does not improve, the lending of private persons or the number of loans granted to them will also not improve.
However, this situation is not only due to the individuals themselves but also to the national economy. The sharp decline in the number of loans granted started already at the end of 2008, when the so-called “fat years” ended in Latvia and the economic crisis began. As we know, the crisis is having a negative impact on almost all economic indicators, so people simply could not afford to take loans the way they did before the crisis.
Extending loans to individuals to the extent that they use
Lenders themselves, especially bank creditors, are no longer willing to take the risk of extending loans to individuals to the extent that they used to. There is, of course, a willingness to lend, but no willingness to take risks, so commercial banks, for example, are not expanding their lending to private individuals and companies in Latvia, because the risk limits currently exceed lending opportunities. First of all, the trust of residents to lenders has been seriously damaged. Secondly, on the one hand, the state wants to boost lending, but on the other hand, when the borrower has solvency problems, it wants lenders not to demand repayment of the credit. Thirdly, the facilitation of the insolvency process of natural persons has degraded the understanding and treatment of notions such as guarantee and pledge.
Number of loans granted to households or individuals
If we look at specific data that shows how many loans were granted to individuals or households in 2014, the results are as follows:
As can be seen, in the banking and non-banking sectors, the number of loans granted to households or individuals continued to decline in 2014 . It is too early to judge the 2015 figures for lending, but several opinions suggest that the number of loans to individuals will continue to decline.