Banks, Financial Services, Good for Business, Latvia

The basic principles stipulate that creditors (credit institutions) will voluntarily write off private individuals' debts, fully or partly, on the basis of a transparent policy approved by a given credit institution and after assessing the debtors in good faith.

Credit institutions will unilaterally write off mortgages taken out by individuals until end-2008, who defaulted on their mortgage repayments and whose properties bought on mortgage have been foreclosed on.

Mortgages will not be written off for debtors under insolvency proceedings. Capital gains tax and personal income tax will not apply to writing off of defaulted mortgages.

Writing off defaulted mortgages is expected to be fiscally neutral, that is, they will not generate revenue or expenditure for the state budget and credit institutions.

In order to enable credit institutions to write off mortgages, it is necessary to amend the law by granting credit institutions the right to unilaterally (full or partly) write off defaulted mortgages, and to provide that this does not cause tax debts for the debtors.

The Bank of Latvia and the association estimate that there are approximately 13,000 such debtors in total, and that the total amount of their debts is around EUR 600 mln.

As reported, the Bank of Latvia Governor Martins Kazaks is urging banks to write off the so-called "fat year" or "bubble" era debts that would allow more than 10,000 people to return to the economy.

As Kazaks said in an interview with Latvian Television at the beginning of March, a significant number of residents took out loans in the so-called "fat years", mostly mortgages that many were unable to repay later. Part of the property was expropriated, but in many cases it was not enough to pay off their debts. At present, many banks consider these debts irrecoverable, but they have not been technically written off.