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.
