More bad Baltic loans, but little cause for concern - Nordea

Jul 22, 2008
By Mike Collier

THE latest interim report from Nordic financial giant Nordea reveals that problem loans are becoming markedly more common in its Baltic operations, but that default levels remain relatively low.

The weighty report, released July 22, blames the Baltics for the growth in impaired loans, which grew by 3% across the group to EUR 1,478m at the end of June 2008 compared to EUR 1,432m at the end of December 2007.

“The increase is attributable to the Baltic countries, where impaired loans gross increased to EUR 80m from EUR 29m. Consequently, the collective allowances for the Baltic countries, EUR 90m, are higher than the impaired loans. On back of expected loan loss levels, the current allowances for the Baltic countries are assessed to be sufficient for the foreseeable future,” the report says.

But despite the jump in problem loans, lending volumes still grew by 60 percent year-on-year in the Baltic region in the first six months of 2008. “Even though the growth rate is high, the growth has been generated
with continued cautiousness and prudent risk management and is mainly explained by increased corporate lending,” the report says. Lending in the Baltic countries constitutes 2.5% of the Group’s total lending.

“Loan losses for the second quarter include a collective provision of EUR 10m for the Baltic countries. This gives collective allowances for the Baltic countries at the end of the second quarter of EUR 90m. The loan loss ratio for individually assessed loans in the Baltic countries in the second quarter was 10 basis points.

“This reflects the slowdown in the macroeconomic development in this region,” the report says,, adding that it expects “somewhat higher” loan losses for the second half of the year, suggesting that the worst is yet to come.

That seems to be borne out by a downward revision of expectations regarding annual profits.

“Nordea previously has communicated an expected growth in risk-adjusted profit of 5-10%. Nordea now expects to deliver a growth of approx. 5%... However, the development in the financial markets will affect the outcome and determine whether the growth will be somewhat above or below 5%,” the report says, with a notable lack of confidence.

Nevertheless, Christian Clausen, President and Group CEO of Nordea pronounced himself pleased with “a high activity level and record results in customer areas in a period with weakened and volatile financial markets.”

Group profit before loan losses was almost unchaged at EUR 1,825m but loan losses of EUR 57m meant that risk-adjusted profits dipped 1% from EUR 1,197m to EUR 1,185m.




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