Lending activity in Latvia has grown significantly. In 2025, outstanding loans to non-financial corporations and households increased by 15.3% and 9.9% respectively. This marks the fastest rise in outstanding loans over the last 18 years. Moreover, the growth rate of the loan portfolio exceeded that of nominal GDP for a second consecutive year. As a result, the loan-to-GDP ratio has also increased by 2.2 percentage points over the last two years.
Chart 1. Annual change in outstanding loans to households and non-financial corporations*
* The impact of structural changes and one-off factors in the banking sector has been excluded for comparison purposes.
The decline in lending rates has been a major factor driving the recovery in lending activity. This is explained both by the fall in money market interest rates, including the short-term EURIBOR rates, and by lower markups. EURIBOR rates, mostly used as reference rates for loan pricing in Latvia, have decreased by more than 2 percentage points after peaking in October 2023. At the same time, markups on new loans have also fallen significantly, particularly in the mortgage loan segment. This is, among other things, due to borrowers' growing interest in loan refinancing possibilities.
Based on analysis and proposals by Latvijas Banka, amendments to several laws and regulations1The Consumer Rights Protection Law, the Insurance Contract Law, the Credit Institution Law, the Notariate Law, Cabinet Regulation No 691 "Regulations Regarding Consumer Credit" of 25 October 2016, Cabinet Regulation No 95 "Regulations Regarding the State Assistance in Purchase or Construction of Residential Space" of 20 February 2018.
were introduced, resulting in substantially lower costs for mortgage loan refinancing. This included prohibiting commissions for refinancing mortgage loans, eliminating the state fee previously payable during refinancing for registering new collateral, and limiting other costs.
In addition, Latvijas Banka created a dedicated section on the website Naudas skola to encourage Latvian borrowers to take advantage of opportunities to improve their loan conditions. The webpage includes an information tool that enables borrowers to find out how competitive the current markup on a mortgage loan is compared to the average interest rates on loans granted over the past six months. The section also contains a calculator that allows the visitor to compare monthly loan payments under different conditions. In addition, the section provides a step-by-step guide explaining what borrowers need to do if they wish to refinance their mortgage loan, along with answers to frequently asked questions.
To make this opportunity clear, accessible, and practical to use for as many mortgage borrowers as possible, Latvijas Banka launched a targeted information campaign. This demonstrated the exceptionally strong interest among Latvia's population in improving mortgage loan terms.
According to the Credit Register of Latvijas Banka, 11 505 mortgage loans were refinanced in 2025 – 2.3 times more than in the previous three years combined.2The increase compared to previous years would have been even greater had loan markups not been temporarily reduced in 2023. This period was marked by a sharp increase in lending interest rates driven by rising monetary policy rates. The need to introduce support for mortgage borrowers was also discussed. With the amendments to the Consumer Rights Protection Law, which provided for a compensation of 30% of the total loan interest payments, the activity of reducing markups also significantly decreased.
Out of these, 10 540 loans were refinanced by current lenders and 965 loans were refinanced with other lenders. The total value of these loans amounts to nearly EUR 840 million, or 18% of the total mortgage loan portfolio in Latvia in early 2025.
Chart 2. Number of mortgage loans with reduced markups (thousands)
On average, markups on loans that were refinanced by the current lender declined by 0.45 percentage points. Meanwhile, the decrease in markups on the loans refinanced with another lender was as high as 0.8 percentage points on average.
Such reductions in interest rates enabled Latvian borrowers to significantly lower their interest expenses over the course of a year. Those that refinanced their loans with the current lender saved an average of EUR 350 per year in interest expenses, while those who refinanced their loans with other lenders saved even more – on average EUR 500.
Assuming that the loan is not repaid ahead of schedule, the total savings for all borrowers during the entire lifespan of loans amount to EUR 53.5 million.
The easing of refinancing has fostered competition in the mortgage lending segment for at least two reasons. First, increased borrower interest in securing more favourable loan terms from other lenders, combined with simplified refinancing conditions, has compelled existing lenders to compete more actively to hold on to their customers. Second, the availability of refinancing options and the lifting of advertising restrictions have made the mortgage market more accessible to new players. As a result, the role of smaller lenders in the mortgage market has grown significantly in recent quarters compared with two years ago. This has intensified competition and expanded the range of choices available to borrowers.
In the future, mortgage lending activity is expected to be supported not only by increased competition, but also by a new programme of AS Attīstības finanšu institūcija Altum – loans for house purchase in regions outside Riga, Jūrmala, and the municipalities of Mārupe, Olaine, Ķekava, Salaspils, Ropaži, and Ādaži. The programme aims to promote the availability of housing loans across Latvia's regions to address the issue identified by Latvijas Banka in the 2024 report "Financing of the Economy"
Lending activity is also growing in the segment of non-financial corporations, but this is not driven by lower markups. Unlike the mortgage segment, markups on loans to non-financial corporations have remained fairly stable over the past eight years. An analysis conducted by Latvijas Banka shows that higher lending activity may at least partly have been driven by credit institutions' efforts to reach the threshold for a reduction in the solidarity contribution, thereby reducing or entirely avoiding such payments.
However, solidarity contributions are unlikely to lead to a sustained increase in lending to non-financial corporations. In 2025, the most pronounced growth in outstanding loans was observed for credit lines, revolving loans, and overdrafts. Such types of loans are most often issued with much shorter maturities than a typical loan for a non-financial corporation's investment needs. Therefore, the current lending trend may not be sustainable in the future. Changes in tax policy also create legal uncertainty, which may reduce the interest of foreign investors in Latvia.
A number of other factors limiting lending to non-financial corporations, including high collateral requirements by lenders, also remain relevant. In 2024, the average collateral value for loans to non-financial corporations in Latvia stood at 162% of the loan amount. Furthermore, for a large share of loans, the collateral value is as much as twice the loan amount. In Latvia, it is also fairly common to require personal guarantees when issuing loans to non-financial corporations, which is a key factor limiting lending.
These and other factors point to segmentation in lending to non-financial corporations. In turn, it suggests that the availability of competing offers for Latvian non-financial corporations is more limited than it may seem, bearing in mind the relatively large number of credit institutions in Latvia. One way to reduce segmentation and strengthen competition in lending to non-financial corporations is to facilitate the awareness and mobility of borrowers. Latvijas Banka, in cooperation with the Ministry of Finance, has carried out an analysis and prepared a regulatory draft to limit commissions for the early repayment of loans. The results of this analysis and proposals to improve the situation are discussed in the Financial Sector Development Board.
Latvijas Banka also continues its dialogue with the financial sector on solutions aimed at reducing disproportionately high collateral requirements, while protecting the interests of lenders without hindering the development of business.