RIGA — Massive losses in Latvia’s banking sector are continuing to pile up despite a slackening gross domestic product decline.

Latvian bank operating losses in 2009 reached 637.5 million lats (€899 million) in October, according to data from the Latvian Central Bank.

During the same period in 2008 the banking sector earned a 220.5 million lats (€310 million) profit. To counter the losses, some Swedish banks have become more aggressive in their consumer policies. Meanhwhile the banks are securing more capital to insure against doubtful loans.

Swedish banks Swedbank, Nordea and SEB, which dominate the bank sector in Baltics, do not have much reasons to worry, though. The banks are guaranteed a bailout by the government should they become involvent and stress tests recently conducted by financial authorities in Sweden show the banks have the capacity to withstand up to 26.4 billion lats (€37.2 billion) in losses. The biggest share of these theoretical losses would be originate in the Baltics.

Dubious methods

Nevertheless the banks are trying to recover the current losses and Swedbank in Latvia has recently made drawn the ire of consumer protection organizations with its loss-reducing actions.

Loan takers have received letters for the bank in which they are asked to come to the bank office and discuss interest rate changes, which normally would involve raising the rate. Two cases have been recently reported in writing to Latvia’s Consumer Rights Protection Centre, and several Swedbank clients have complained via e-mail during the last month.

According to the centre, Swedbank’s letters seem to be a massive campaign. How many have actually got these letters was not specified by the bank.

“Every bank has a responsibility to follow its loan recipient’s solvency and its changes, ” Swedbank’s press secretary Kristīne Jakuboska told the local press. This can concern respective client’s income, monthly payments, new credit liabilities and other new expenses.

The Latvian Association of Loan Customers and Consumer Rights Protection Centre advise Swedbank’s clients not to respond to the letters, which they do not think they would violate agreement terms. The centre will process complaints regarding Swedbank in one month.

Meanwhile the credit register in Latvia shows that banks have been using their data more frequently. During the third quarter of 2009 the register has got 21,000 more inquiries compared to the second quarter.