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IMF Country Report No. 22/278
REPUBLIC OF LATVIA
SELECTED ISSUES
August 2022
This Selected Issues paper on the Republic of Latvia was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on July 12, 2022.
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Title Page
REPUBLIC OF LATVIA
SELECTED ISSUES
July 12, 2022
Approved by
European Department
Prepared by Bogdan Lissovolik
Contents
HIGH LENDING INTEREST RATES AND CREDIT-LESS RECOVERY IN LATVIA: A COMPARATIVE MACRO-FINANCIAL PERSPECTIVE FROM THE BALTICS AND THE EURO-AREA
A. Introduction
B. “Unpacking” Comparisons of Latvia’s Lending Rates
C. Exploring Potential Factors behind the Interest Rate Differentials
D. Analysis of Corporate Credit Growth
E. Policy Recommendations
F. Conclusions
FIGURES
1. Loan Interest Rates in the Baltics and the Euro-Area, 2015–22
2. Household and Corporate Loan Rates in the Baltics and the Euro-Area, 2015–22
3. Short-term and Long-term Loan Rates in the Baltics and the Euro-Area, 2015–22
4. Consumption Loans by Maturity in the Baltics and the Euro-Area, 2015–22
5. Mortgage Loans by Maturity in the Baltics and the Euro-Area, 2015–22
6. Small NFC Loans by Maturity in the Baltics and the Euro-Area, 2015–22
7. Short Term Corporate Loans by Size in the Baltics and the Euro-Area, 2015–22
8. Medium Term Corporate Loans by Size in the Baltics and the Euro-Area, 2015–22
9. Country-level Interest Rate Differentials, 2021–22
10. Interest Rate Convergence Between Latvia/Baltics and the Euro-Area, 2015–22
11. Interest Rate Convergence between Latvia and Other Baltic Countries, 2015–22
12. Baltics and the Euro-Area: Cost of Deposits, 2015/16–2021/22
13. Baltics and the Euro-Area: Cost of Selected Deposits, 2015–22
14. Interest Rate Term Premium in the Baltics and the Euro-Area, 2015–22
15. Interest Rate Premium in the Baltics and the Euro-Area, 2015–22
16. NPL Ratios in Latvia and Estonia, and Latvia’s Nominal NPLs by Sector, 2016–21
17. Credit in the Baltics and the Euro-Area, 2015–22
18. Relationship Between Regression Residuals and Lending Interest Rates
TABLES
1. Interest Rates and Collateral
2. OLS Regression for Credit Growth (Quarterly Data)
3. OLS Regression for Credit Growth (Monthly Data)
References