Bigbank: Let's Learn from Latvia and Allow Home Loan Advertising, This Will Increase Competition in the Banking Market
According to Martin Länts, Chairman of the Board of Bigbank, Estonian lawmakers should follow the example of our southern neighbors in Latvia, where the president announced last Friday a legislative change that allows banks, unlike in Estonia, to advertise the precise terms of their home loan offerings.
"Both countries have been discussing for some time how to increase competition between banks and bring down loan interest rates, but unlike us, our southern neighbors the Latvians have moved from words to action," confirmed Martin Länts, Chairman of the Board of Bigbank, which issues home loans in Estonia, Latvia and Lithuania. The first measure has already come into force in the Latvian market, and according to Länts, it is something Estonia could learn from – to stimulate competition and thereby make home loan margins lower for consumers, home loans can now be advertised again in Latvia. Meanwhile, advertising for other consumer credit remains highly restricted.
Martin Länts noted that in Estonia, credit institutions are today prohibited from advertising home loans in a way that would allow them to clearly present the offered interest rate, the bank margin amount, or other contract terms more favorable than competitors. "Today, we can only convey as advertising the fact that we offer a home loan, to which we can add in small print a description of standard terms in the form confirmed by the regulator together with the total cost of credit. Since advertising of any consumer credit terms is prohibited, a consumer cannot find out what is a good offer on the home loan market without doing research themselves and requesting quotes, and the bank also cannot provide them with a comparison of their own and a competitor's product," he explained. According to Länts, a home loan, as a financial product secured by real estate and formalized by notary, is significantly safer and more regulated than ordinary consumer credit products, and therefore its advertising should be permitted.
"Although the broader purpose of advertising restrictions is to prevent encouraging people to borrow and promoting borrowing as a risk-free activity, at least the advertising restrictions on home loans have created a situation for smaller banks where consumers do not have complete information about neither the providers of the corresponding credit nor the products offered. This does not promote market transparency or competition between credit providers," described Bigbank's head Martin Länts the current situation.
The new consumer rights protection law announced by the Latvian president last week is part of a larger package of legislative changes to stimulate the residential loan market in Latvia and promote competition through simplified refinancing transactions. Several legislative improvements and regulatory supplements that are part of the package are still being worked on and are expected to be adopted by the Latvian government cabinet by early April.
