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Swedbank to set up division to help ailing economy and clients

  • 2008-12-17
  • By Monika Hanley

HELPING HAND: Swedbank has announced that it will set up a division to work with dispossesed assets, helping to minimize losses in the Baltics.

RIGA - Swedbank is currently reviewing the possibility of setting up a structural division that would manage and dispose of properties forfeited from borrowers and pledged to the bank.
The bank's Baltic head, Erkki Raasuke, told reporters that Swedbank, in light of financial troubles, has increased its work with clients in Latvia, Lithuania and Estonia who are struggling.
"In the Baltics, Swedbank is working with clients that have difficulties with repaying their loans. Foreclosure is the last resort we consider, but unfortunately it has to be used in some cases," Raasuke said.

Raasuke also explained that the bank's management is presently considering setting up a special structural division to deal with the assets pledged by borrowers who are unable to meet current loan payments.
"The concept providing for setting up a transparently financed structural division for work with dispossessed assets has been used on many occasions in various countries. For us, this is a plan C or plan B," the Baltic Swedbank chief said.

Swedbank's crediting losses reached 0.9 percent of its loan portfolio in the third quarter and 0.62 percent of the loan portfolio in the first nine months of 2008.
Originally the bank had expected its crediting losses to make up about 0.7 percent of the loan portfolio and to reach 1.2 percent in 2009. Now it is clear, however, that the losses will be much larger as the economic situation in the Baltics has been deteriorating much faster than expected.
Swedbank has said it would upwardly revise its forecasts on losses in the Baltics, but has not yet disclosed the figure.

"We are now considering of forming such a vehicle, therefore it's early to speak about details. If we form this vehicle, it's difficult to say, for how long. It depends on developments in the economy 's it might be necessary until the end of the negative part of this economic cycle," said Raasuke.
SEB, another major Swedish bank operating in the Baltics, has decided to establish subsidiaries in the Baltics to handle the forfeited properties as well as to help aid clients in the short term.
"Unfortunately, a recession will be hard to avoid in the following few quarters, as economic activity continued to decline during the summer months and the current prevailing mood, influenced by domestic and external factors, is not optimistic either," the report said.

SEB said the decision to set up the subsidiaries was based on the group's long-term experience and practice used during an economic recession in Sweden decades ago.
SEB analysts, in a macroeconomic report earlier in the year, had correctly predicted that the economy would shrink overall in 2008.

However, the Latvian Central Bank predicted at the end of September that growth in the country will remain small but positive overall this year, despite a contraction in the third and fourth quarters of the year.
Prime Minister Ivars Godmanis said in November that Latvia's recession in 2009 will be more than analysts predicted with output likely to shrink by 5 percent rather than the original prediction of 3.5-3.9 percent.