RIGA - Bank credit in the Baltics may come under additional pressure as Nordic banks, including Nordea and Danske Bank, among the region's biggest lenders, could further cut lending there, according to Moody's Investors Service, reports Bloomberg. The banks are likely to "curb the exposure" they have to "to some highly volatile countries," says Moody's senior vice president Janne Thomsen.
Swedbank and SEB, the largest banks in Estonia, Latvia and Lithuania, have cut lending in the region this year. Nordic banks, however, have recently reaffirmed their commitment to meet the liquidity and capital needs of their branches in these countries, and have agreed to "maintain their overall exposure," says the IMF and European Commission.
Swedbank says that its business in the Baltics was still on a downward trend, though it is holding to its view that the pace of loan losses in the second half will slow, reports Reuters. Low interest rates and shrinking credit portfolios are blamed for cutting into profits.
However, the bank says that the appreciation of the Swedish crown against the euro and dollar had helped reduce its exposure towards the Baltics and other international markets.
"The key thing is that the Baltics were trending down, which is no great surprise," said a London-based analyst. "On balance, it's good in terms of there being no further deterioration in asset quality, which is what people have been worried about."
"Loan losses at Nordic banks during the current financial crisis are likely to be lower than those incurred by the lenders during the banking crisis of the early 1990s. We are not at the same level," affirms Thomsen.
The Swedish banking crisis of the 1990s was due to investments in the booming real-estate market during the 1980s, though a government-led bailout in 1992 was needed after loan losses soared.
The Latvian banking sector has lost 455.4 million lats (650.5 million euros) so far in the first eight months of this year, show preliminary data from the Financial and Capital Market Commission. Ten banks operated at a combined profit of 18.2 million lats.
Parex Asset Management market analyst Zigurds Vaikulis warns that Latvia's banks could lose up to 900 million lats this year. He considers that late payments by customers, those over 90 days, now make up 13 percent of loans, but by year-end this could reach 20 percent of borrowers.
