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Latvia's Personal Bankruptcy Law Won't Impact Nordic Lenders, Nordea Says
A Latvian personal bankruptcy law passed by parliament yesterday won’t hurt Nordic lenders because provisions set aside for bad loans will cover the impact of the bill, according to Nordea Bank AB.
Latvia’s 100-seat legislature voted yesterday to pass the law, which will require lenders to forgive debt for private borrowers declared bankrupt after a maximum of three and a half years.
Loans late by more than 90 days in Latvia reached 19 percent of the total in May, according to the country’s banking regulator. Borrowers have struggled to service their debt after a real estate-fueled economic boom turned to bust and the country’s economy contracted 18 percent last year.
“We do not expect the law to have any significant impact on the Nordic Banks” because they have already taken large provisions in the Baltics, Maths Liljedahl and Pawel Wyszynski, Sweden-based analysts at Nordea, said in an e-mailed note. “Also, the banks themselves have taken part in establishing new rules.”
The Baltic state’s government was forced to turn to a group led by the International Monetary Fund and the European Commission for a 7.5 billion-euro ($9.7 billion) loan in 2008 after Latvia’s second-biggest bank collapsed. Unemployment rose to 20.4 percent in the first quarter, the highest in at least eight years, a labor-force survey released on May 14 showed.
Latvia’s banking sector is dominated by Nordic lenders led by Swedbank AB, SEB AB, Nordea AB and DnB Nord AS, which accounted for about 64 percent of total lending in the first quarter, according to the Association of Latvian Commercial Banks.
‘Obviously Bad News’
Still, the legislation is “obviously bad news and quite negative for the Latvian banking sector,” said Lars Christensen, chief emerging markets analyst at Danske Bank A/S, in an e- mailed note today. “It should be noted that overdue loans in Latvia by the end of June rose to 28.6 percent of all loans. The credit crisis is hence far from over in Latvia.”
The law allows borrowers declared bankrupt to write off their debt after two years if they repay 35 percent of what they owe. A debtor who can repay 50 percent of what he owes is entitled to have his debt written off after one year.
The bill is due to take effect on Nov. 1. The legislation previously adopted by parliament, which was returned by President Valdis Zatlers, would have allowed debt to be forgiven by paying 30 percent of the debtor’s income for two years. Zatlers has yet to sign the law.
To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net
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