Transferring Swedish bank risk onto Latvian taxpayers

This is my translation of an article from Dagens Nyheter, a Swedish daily.

Swedish banks are planning to write down Latvian personal loans by 10 percent. However, the proposal includes only a small part of the Latvia’s mountain of debt.

The criteria for qualifying for the program, as it stands right now, is quite strict. So there is nothing which will include a very large number of private individuals in Latvia, "said Swedbank Director Thomas Backteman to TT.

On Wednesday, Latvian Prime Minister Valdis Dombrovskis on Latvian radio told of new plans to support indebted individuals.

He said that the program is based on "a certain solidarity" from the banks in the country, which are to write down the debt of the people who qualify for assistance.

But according to Thomas Backteman, the proposal comes from the banks themselves. The Latvian Banking Association has been having a discussion with the Government of Latvia on a way to restructure of private debts.

The Bankers’ Association made a proposal to provide a moratorium, that is, a temporary deferral, in the case of payments on debts to private persons.

And for those who give this concession, the state will step in and guarantee the debt. “Then we will write down the debt by 10 percent," he says.

Swedbank and SEB are the two banks with the most loan customers in Latvia. Like SEB Swedbank estimates that the economic impact of the proposal will be small:

"Our current assessment is that only a small part of SEB’s loans to households would be covered," writes Elisabeth Lennhede, press officer at the bank, in an email to TT.

And even if the debts are written down, the program would probably also mean that banks would forgo a small part of the massive credit losses that are expected to arise in Latvia in the coming years.

That’s how it is, and above all, we get a guarantee, "says Thomas Backteman.

It sounds like a transfer of risk from Swedish banks to Latvian taxpayers if you asked me.

Lettiska skulder ska skrivas ned – Dagens Nyheter


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.