Latvian Firms Pay More for Loans Than Eurozone Peers, by About 1.35 Percentage Points

Companies in Latvia pay more for loans than their eurozone counterparts, an analysis in the Financial Accessibility Review by the Bank of Latvia, the country's central bank, shows. On average, the margin on a loan to a Latvian company is about 1.35 percentage points higher than for a similar company taking a similar loan elsewhere in the eurozone. This means external financing costs more in Latvia, which can limit how much businesses borrow.

What the Bank of Latvia analysed

The central bank compared differences in corporate loan interest rate margins across eurozone countries, taking into account risk factors related to both borrowers and the loans themselves.

The results show that significant differences in loan margins between eurozone countries remain even after these factors are accounted for.

Country-specific factors

The review states that the differences cannot be explained by borrower or loan risk characteristics alone. The Bank of Latvia links them to country-specific factors, including the intensity of competition and historical lending practices. The influence of such factors on corporate loan margins is greatest in the Baltic states.

Conclusion on lending conditions

The Bank of Latvia concludes that corporate lending conditions in Latvia remain relatively unattractive. The high price of credit is one of the factors limiting the use of external financing.