Impact of Financial Market Regulation on Fast Loan Lending in Latvia

Abstract

Non-bank lenders have always been part of Latvian lending sector. During economic downfall, when commercial banks significantly decreased volumes of lending, fast loan companies gained momentum, benefiting from wide marketing campaigns. Non-bank lenders were not regulated by local financial supervision authorities, and also were not subject to state licensing. Although the fast loan portfolio is much less then total volume of bank loans the rising public interest is caused by the great number of people using fast loans and enforcement of government institutions to protect the interests of consumers. Topicality of the research also lies within the fact that operations of non-bank lenders in Latvia have not so far been practically studied.

The market regulation was introduced in November 2011 so the main purpose of the research is to study influence of financial market regulation introduced by state authorities on operations of non-bank lenders, incl. operations of fast loan companies.

Research methods used: analysis of statistical data, content analysis of internet sites, calculations of financial ratios, survey of fast loan companies and structured interviews with professionals involved in market regulation process.

The number of fast loan companies before introduction of regulation was found and compared with new licensed ones. The research showed that introduction of regulatory measures significantly decreased number of non-bank lenders and fast loan companies and therefore – the competition. It was established that introduction of financial market regulation does not leave negative impact on financial indicators of market leaders, but significantly decreased number of smaller fast loan companies.

Limitation of the research is study period from the first quarter of 2007 till the second quarter of 2012.

The research has practical implications for financial market regulation, fast loan companies and potential improvements in relation to non-bank sector.

Social implications of the research lies under promotion of socially conscious consumer lending that could help develop fair lending and drive environmental and economic sustainability.

Originality and value of the research lies under structured and well established operating characteristics of the non-bank lenders, using quantitative and as well qualitative indicators, including also moral and ethical implications.