Credit Trends and Industry Outlooks in 2010 by Moody’s
Moody’s outlook for the three banking systems of the Baltic countries of Estonia, Latvia and Lithuania will remain negative at least for this year. Since 2007 the Baltic countries have been facing an acute and rapid slowdown – albeit to different degrees – which is resulting in significant credit deterioration for households and companies. Considering the increasingly differentiated economic developments among the three Baltic countries, there is a greater likelihood that Estonia would be the first to see its outlook changed to stable followed – over time – by Lithuania, and then Latvia.
Latvia is forecast to remain in recession at least until the middle of 2010. Despite several signs of economic stabilisation, domestic demand remains very weak due to falling wages, rising unemployment and fiscal tightening. According to Moody’s, there is a risk that the Baltic economies will remain weak for a prolonged period of time, with their banking systems remaining under pressure. However, the expected developments in the individual Baltic countries are increasingly differentiated through the crisis, with Estonia enjoying a more favourable position followed by Lithuania and then Latvia. This is reflected in Moody’s sovereign ratings (Estonia: A1 (Stable Outlook), Lithuania: Baa1 (Stable Outlook), and Latvia: Baa3 (Stable Outlook). The outlook on the three countries sovereign ratings was changed to stable from negative in March 2010.
The weak economic environment has had a direct impact on the Baltic banks’ asset quality. In Latvia, which is the hardest hit by the economic recession amongst the Baltic states, problem loans that are 90+ days overdue accounted for 17.4% of the total banking system loan portfolio at end-January 2010, up from around 4% at YE2008. Net interest income remains the main source of revenue for the Baltic banks. On the funding side, the three Baltic banking systems enjoy good deposit bases, which have remained relatively stable during most of 2009. Given the weakness of the Baltic economies and the extent of the risks within the banking systems themselves, a change in outlook is unlikely in 2010.
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Investment between U.S. and Latvia has tremendous room for growth
At the annual meeting of European Council of American Chambers of Commerce (ECACC), host AmCham EU took a look ahead at what the next ten years will bring to the transatlantic economy with particular focus on Foreign Direct Investment (FDI) and green technologies. The conference was the fourth Transatlantic Conference with over 150 attendees.
At the conference the Transatlantic Economy 2010, authored by Daniel Hamilton and Joseph Quinlan from the Center for Transatlantic Relations at Johns Hopkins University was launched. Daniel Hamilton presented the key statistics from this year's study which revealed that despite global recession and high growth from emerging markets, the transatlantic market place continues to remain the world's largest commercial artery.
According to the Transatlantic Economy 2010, U.S. investment flow to Europe considerably outweighs U.S. investment elsewhere. However, investment flow between the U.S. and Latvia is shallow, but expected to gradually expand over the next decade.
On a historic cost basis, the U.S. investment position in Europe was nearly four times larger than corporate America's investment position in all of Asia at the end of 2008. But its center of gravity has clearly changed with Hungary, Czech Republic and Poland become rising stars for America's investments, outperforming traditional favorites Ireland, Spain and Germany.
To download the Transatlantic Economy 2010,
click here. Additionally, ECACC executive directors attended the Annual EU Briefing. The briefing included the First President’s Roundtable that was hosted by John Vassallo, Chair of AmCham EU. At the policy themed lunch AmCham EU members mixed with representatives from the AmChams to discuss various hot issues.
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Moody’s raises the outlooks on Latvia
Global Credit Research - March, 31 2010
Moody's Investors Service has raised the outlook on the Latvian government's Baa3 ratings to stable from negative on March 31, 2010. The outlook on the foreign currency deposit ceiling was also changed to stable. The change in outlook was prompted by the stabilisation of the economy and significant reduction in financial stress over the past six months. "The worst of the recession has passed, and the fledgling recovery should support the government's financial strength and the banking sector in future," says Kenneth Orchard, Vice-President/Senior Credit Officer in Moody's Sovereign Risk Group. "In addition, the prospect of a disorderly currency devaluation is now highly unlikely, reducing the country's susceptibility to event risk from "high" to "medium" according to Moody's sovereign rating methodology."
Orchard points to the gradual improvement in economic activity since late 2009, and the economy is forecast to begin growing again in the second half of 2010. A sharp rebound is not expected, however, as it will take several years for the economy to recover from the bursting of the property bubble and subsequent financial crisis.
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Latvian Producers Base Success on Exports
The Latvian Institute, Issue 12
On March 26, Economics Minister Artis Kampars indicated that Latvian businesses have proven their competitiveness in external markets in 2009 despite the economic crisis. In 2009 production reached LVL 2.77 billion (EUR 3.94 billion) and more than half of it (54%) consisted of exports. Kampars told: “Last year Latvian manufacturers concluded the year with comparably good results in exports proving the competitiveness of Latvian products in foreign countries and its high potential”.
Leading sectors of the national economy in 2009 were the food industry, wood-processing and metal-fabricating industry. Conversely the highest export potential lies in production of machinery and equipment, transport vehicles, electrical and optical equipment and light industry which export proportion in overall sales of sector exceeds 80%.
The Minister is certain that manufacturing will continue to assume a growing importance in the Latvian national economy. Positive tendencies can already be observed in manufacturing which are decreasing the impact of the crisis on financial indicators – even more businesses are producing niche or innovative products, choosing modernization over labour-consuming manufacturing, and diversifying markets.
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Latvia to Reduce VAT for Hotels and to Keep Reduced Rate for Press
The Latvian Institute, Issue 12
On March 25, the Saeima (parliament) unanimously supported the proposal to cut value added tax (VAT) for lodging services from 21% to 10% and keep a reduced VAT rate for press in the amount of 10% from May 1, 2010.
VAT reduction for accommodation is decreased to improve competitiveness of tourism sector enterprises in foreign markets and to stimulate tourism industry development in Latvia. The decreased rate would allow for price reductions in lodging services. The President of the Association of Hotels and Restaurants of Latvia Jānis Naglis previously forecast that “Reduction of VAT in tourism sector will result in positive tendencies in the next two and a half years time. The decision provides a positive signal abroad, so that slight acceleration might be expected in 2011.”
Economics Minister Artis Kampars has signed the agreement on the reduction of VAT with non-governmental organisations of the tourism sector, which in return promises to create new workplaces, provide additional income in the budget and decrease price for accommodation.
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U.S. Non-Immigrant Visa Applicants in Latvia Must Use the Online Electronic Application Starting From April 1
Beginning April 1, 2010, the U.S. Embassy in Riga will start requiring the online DS-160 Non-immigrant Visa Electronic Application from all applicants. The DS-160 is a fully web-based nonimmigrant visa application that will be required worldwide. The U.S. Department of State is introducing the online application in an effort to become more efficient and to reduce use of paper forms in accordance with the Government Paperwork Elimination Act (GPEA 1998).
Visa applicants will be able to access the DS-160 from the web-based Consular Electronic Application Center (CEAC). The U.S. Embassy Riga web site is being updated to provide a link to the CEAC and answers to the frequently asked questions about the electronic application that other U.S. embassies around the world have encountered, as well as technical tips on completing the form online. The online electronic application will fully replace three different types of application forms previously required from non-immigrant visa applicants. The online application also allows visa applicants to upload their own photos in advance of their interview.
Beginning April 1, applicants for non-immigrant visas will have to complete the application DS-160 online and submit it electronically to the Embassy. They will need to print only a confirmation page verifying completion of the online application. This page, the applicant’s passport, and other supporting documents, depending on the type of the visa the applicant requires, should be presented to the Embassy at the time of the visa interview.
The U.S. Embassy Riga web site http://riga.usembassy.gov/ provides up-to-date information on U.S. entry requirements for Latvian residents in Latvian, English, and Russian. The U.S. Department of State web site http://www.travel.state.gov/ has the most comprehensive information for travelers about U.S. visas and related documentary requirements.
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On March 4, Prime Minister Valdis Dombrovskis in an interview with Bloomberg said “Latvia is in talks to reduce the size of its bailout after the European Union’s toughest austerity program helped narrow the budget deficit and replenish state coffers. We have plenty of cash, we have already started negotiations with international lenders to use some of the next instalments not as credit but as a credit line.” Now, “we are in the process of restoring credibility,” said Dombrovskis. “The Rigibor interbank rate is now not only at the lowest level since the crisis, it’s at the lowest level ever, so really we managed to stabilize financial markets.” Despite Moody’s Investor Service reports, that Latvia’s “susceptibility to event risk is high”, Yarkin Cebeci, an economist at JPMorgan Chase & Co., underlines: “His [Dombrovskis] performance has been outstanding at least from the perspective of the international investor. When he first took office, there was serious skepticism over this government’s ability to stay together and to implement the fiscal measures needed to keep the economic program and hence the currency peg intact. The international investor is now confident about Latvia and, in fact, is using the Latvian case as an example for countries who need to deliver on the fiscal front.” For full article see here.
On March 4, the World Bank’s Board of Executive Directors approved a EUR 100 million loan to Latvia for the social sector support. “The Latvian government has achieved a significant decrease in the budget deficit and at the same time established a social security network that is planned for supporting socially vulnerable groups in society. The loan approved today will help us to achieve these goals – fiscal stability and social security. I am grateful for the support that the World Bank has provided us in establishment of a social safety net,” indicated Minister of Finance Einars Repše.
