Financial Regulatory Forum

Latvia seeks debt write-downs in home-loan restructure plan

By Reuters Staff
July 8, 2009

   By Patrick Lannin and Sven Nordenstam
   RIGA/STOCKHOLM, July 8 (Reuters) – Latvia wants banks to write off 10 percent of the debt of people who enter a planned scheme to restructure problem loans, the prime minister said on Wednesday, but banks said volumes concerned would be small.
   The scheme, mostly covering home loans, is being drawn up by Latvia under the auspices of the International Monetary Fund as part of measures to boost the moribund financial sector linked to the Baltic state’s 7.5 billion euro rescue agreed last year.
   Latvia’s top banks are Scandinavian groups Swedbank, Nordea and DnB NOR unit DNB NORD, and they are all facing rising loan losses due to surging unemployment.
   “This support scheme has to get support from international lenders (the EU and IMF) and of course a certain solidarity will be needed from the banks as we know that this (plan) foresees banks writing off 10 percent of this debt,” Prime Minister Valdis Dombrovskis told public radio.
   He was referring to a Finance Ministry plan to allow people to get state guarantees for repayments to banks and the borrower would eventually have to repay the state.
   The ministry has estimated up to 40.4 million lats ($81.03 million) a year would be needed for the scheme. Loans up to 100,000 lats would qualify, the property concerned has to be the family’s sole home and other debts cannot exceed 5000 lats.
   The deal would involve 20 percent of the loan being frozen until the end of the restructuring programme, with no interest or debt principal payments required. Repayments on the rest of the debt would not exceed 40 percent of a person’s income.
   Dombrovskis said funds for the scheme would come out of the 2010 budget, though he did not say how they would be found.
   In Stockholm, Swedbank communications director Thomas Backteman said restructuring of loans would be offered under fairly strict criteria.
   “These people can get a temporary relief regarding repayments and what we get in return is a state guarantee for the debts covered by this, plus we also go in and write down debts by 10 percent, according to the proposal,” he said.
   “We do not see that this is something that would cover very big volumes of our client stock,” he added. He said it was not clear whether the scheme would be voluntary or obligatory, though he thought it would most likely be voluntary.
   “If we take part or not will depend on how the final proposal looks, but we back the proposal which comes from the bank association,” he said.
   SEB spokeswoman Elisabeth Lennhede had similar views.
   “Our current view is that only a small part of SEB’s loans to households will be covered,” she wrote in an email. (Reporting by Patrick Lannin; editing by Chris Pizzey/Toby Chopra) ((Riga newsroom, patrick.lannin@reuters.com, patrick.lannin.reuters.com@reuters.net, +371 29 269 191))

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