Latvia's Economic and Financial Outlook

Bank Lending Recovers and Supports Growth Domestic lending recovers and there are favourable preconditions for further lending growth. Key Highlights After a prolonged period of deleveraging, lending growth turned positive in April 2016 o Loans to domestic households and NFCs stood at 35% of GDP in March 2019, down from almost 100% at the outset of the crisis o Domestic loan-to-deposit ratio has fallen substantially, leading to more balanced and sustainable domestic funding for loans 15% 10% Loans to Domestic Clients excluding Government (yoy) 5% • The quality of the loan portfolio continues to improve gradually and the coverage ratio of 90 days overdue loans remains high 0% 2012 2013 2014 2015 2016 2017 2018 2019 -5% Estonia Lithuania Latvia Total Loan Portfolio Quality 20% 15% 10% 5% 0% 2011 2012 2013 Source: FCMC 16 2014 2015 2016 2017 2018 2019 Share of loan loss provisions in outstanding loans Share of loans over 90 days past due in outstanding loans -10% Source: ECB *The time series have been adjusted excluding the one-off effects of loan write-offs, exchange rate fluctuations, reclassification, etc. Domestic Loan-to-Deposit Ratio (%) 186.0 146.8 116.3 90.7 136.9 ■2012 March ■2019 March 112.2 95.5 88.9 EE LV LT EZ Source: ECB

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