THE latest interim reportfrom Nordic financial giant Nordea reveals that problem loans arebecoming markedly more common in its Baltic operations, but thatdefault 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 toEUR 1,432m at the end of December 2007.
"The increase is attributable to theBaltic countries, where impaired loans gross increased to EUR 80mfrom EUR 29m. Consequently, the collective allowances for the Balticcountries, EUR 90m, are higher than the impaired loans. On back ofexpected loan loss levels, the current allowances for the Balticcountries 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 Balticregion in the first six months of 2008. "Even though the growthrate is high, the growth has been generated
with continued cautiousness andprudent risk management and is mainly explained by increasedcorporate lending," the report says. Lending in the Baltic countries constitutes 2.5% of the Group's total lending.
"Loan losses for the second quarterinclude a collective provision of EUR 10m for the Baltic countries.This givescollective allowances for the Balticcountries at the end of the second quarter of EUR 90m. The loan lossratio for individually assessed loans in the Baltic countries in thesecond quarter was 10 basis points.
"This reflects the slowdown in themacroeconomic development in this region," the report says,, addingthat it expects "somewhat higher" loan losses for the second halfof the year, suggesting that the worst is yet to come.
That seems to be borne out by adownward revision of expectations regarding annual profits.
"Nordea previously has communicatedan expected growth in risk-adjusted profit of 5-10%. Nordea nowexpects to deliver a growth of approx. 5%... However, the developmentin the financial markets will affect the outcome and determinewhether the growth will be somewhat above or below 5%," the reportsays, with a notable lack of confidence.
Nevertheless, Christian Clausen,President and Group CEO of Nordea pronounced himself pleased with "ahigh activity level and record results in customer areas in a periodwith weakened and volatile financial markets."
Group profit before loan losses wasalmost unchaged at EUR 1,825m but loan losses of EUR 57m meant thatrisk-adjusted profits dipped 1% from EUR 1,197m to EUR 1,185m.
