Lending Growth Continues in Latvia Despite Rising Interest Rates
In the first half of 2025, lending in Latvia continued to grow rapidly for both businesses and households, despite an increase in financial market interest rates and geopolitical tensions. Active bank competition and low credit margins support new loan issuance.
According to the latest data, lending volumes in Latvia continued to increase in the first half of 2025, despite a rise in financial market interest rates and geopolitical tensions in the Middle East.
Household loan portfolios grew by 10.6% year-on-year in June, reaching nearly €7.2 billion. Mortgage lending saw a strong increase of 9.5%, while consumer credit balances grew even faster. Despite the 6-month EURIBOR rate rising from 2.1% in February to 2.6% in June, an average of €120 million in new housing loans were issued each month through June. This is driven by active bank competition, keeping credit margins lower than a few years ago.
Corporate loan balances also rose by 14.4% year-on-year in June, exceeding €7.2 billion. Growth was broad-based across industries, including manufacturing, energy, and real estate. Long-term loan balances increased, while short-term loan balances declined slightly.
New loan issuance activity remained high: €200 million in loans were issued in June alone, and the total for the first half of the year exceeded €1 billion, similar to the previous year.
Household deposits grew by 8% year-on-year in June, reaching €12.6 billion, while corporate deposits surged by 17.7% to €8.3 billion. The rapid increase in corporate deposits is partly due to newly issued loans not being immediately used and a low base effect from June 2024.
Deposit growth is supported by cautious consumer behavior and rising interest rates making deposits more attractive. Time deposits are growing faster than overnight deposits. State Treasury savings bonds have also become popular, with balances reaching €436 million in May, up 35% from a year earlier. This is driven by their yield: 12-month savings bonds offered 2.8% in June, compared to only 2.3% for bank time deposits, with the added advantage of tax-free interest income.
Although Latvia's loan portfolio is growing rapidly and its annual growth rate is among the highest in the eurozone (behind only Lithuania and Bulgaria), the loan-to-GDP ratio remains very low at 31.8% in the first quarter, compared to the eurozone average of 73%. This suggests significant room for further growth.
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