Lending in Latvia Outpaces GDP Growth, Yet Credit-to-GDP Ratio Remains Among Euro Area's Lowest
A Bank of Latvia report shows lending to businesses and households in Latvia is growing at one of the fastest rates in the euro area. Even so, the ratio of outstanding loans to GDP remains among the lowest in the euro area.
Latvijas Banka, Latvia's central bank, has concluded in its report that lending activity in the country remains relatively high. The stock of loans is growing faster than gross domestic product (GDP), but relative to the size of the economy it is still among the lowest in the euro area, so the recent rise in lending has helped Latvia narrow the gap with other euro area countries.
Growth rates
In 2025, the outstanding amount of loans to non-financial corporations, meaning businesses, rose by 15.3%, while loans to households increased by 9.9%. In the first half of 2026, compared with the first half of the previous year, the stock of business loans grew by 14.4% and household loans by 10.6%. The report says these growth rates are among the fastest in the euro area.
The combined ratio of outstanding loans to businesses and households to GDP has risen by 3.8 percentage points from its low at the start of 2024, reaching 32.5% in the second quarter of 2026.
What lies behind the rise
The central bank concludes that the increase in lending is not concentrated in particular loan types or economic sectors but is seen across a wide range of credit products. A more durable recovery is also indicated by the fact that a significant share of the growth in corporate lending has come from new customers who have had no active credit obligations with credit institutions in recent years.
The report assesses that the growth is mainly linked to lenders' greater willingness to finance a broader group of companies and households. This is suggested by a rising share of comparatively riskier first-time borrowers, as well as by company survey results showing a higher share of approved loan applications, especially among small and micro enterprises.
Constraints
Access to financing is still limited by comparatively high borrowing costs, limited options for fixing interest rates and strict collateral requirements. Although companies' financial health continues to improve, this has not significantly raised demand for external financing, as some firms still regard loan conditions as unattractive.
