Responsible Lending in Banks of the Baltic States

The aim of this article is to clarify basic principles of responsible lending in lending agreements between banks and individuals in Latvia, as well as in the existing legislation in the Baltic States that regulates this process. In order to obtain research results, the authors performed qualitative analysis of scientific literature on the issues of responsible lending; legislation that regulates mortgage lending in the Baltic States; successful experience of banks in other countries; information available on home pages of banks about commercial bank loan volumes for mortgage loans with different types of real estate asset backing; information included in loan agreements of four commercial banks in Latvia and its compliance with the laws and regulations. Loan borrower evaluation stages for review of a new loan application were developed. On the basis of loan agreement analysis, the authors elaborated a formula of monthly loan payments for bank customers who experience unfavourable financial conditions. As a result of the research, the authors came to a conclusion that in Latvia and Estonia there is no legislation that directly regulates mortgage loans. During the research the authors also faced some restrictions, as not all banks in Latvia, which continue lending activities, are willing to give information included in loan agreements