RIGA - Swedish banks have announced that there are no plans to pull out of the Latvia market and that they are currently mapping long-term strategies to ride out the economic crisis.
Scandinavian banks have sustained huge losses in bad loans within the Baltic region. Sweden's economy has also suffered a dramatic downturn in the wake of the global financial slowdown.
SEB Bank posted 29.5 million lats (41.9 million euros) in profit at the close of last year, 2.6 times less than in 2007.
SEB Bank representatives told journalists that provisions created for non-performing loans had led to the fall in profits.
In 2008 provisions for bad loans accounted for 1.6 percent of the bank's total loan portfolio, up from 0.5 percent in 2007.
However, Swedish Ambassador to Latvia Mats Staffansson has maintained that cutting back on investments is not on the agenda.
"Sweden has not even considered leaving Latvia in any way. First, Sweden feels solidarity with the countries on the other coast of the Baltic Sea. Second, we are deeply involved here 's Swedish banks have issued more than half of the loans in Latvia, and in Estonia the loans issued reach almost 90 percent of all loans," said Staffansson.
Leaders of Scandinavian banks recently confirmed long-term strategic plans following talks with Latvian financial supervision authorities on Feb. 6.
Representatives of the Latvian Finance Ministry, State Treasury, Swedish Finance Ministry, the Finance and Capital Market Commission (FKTK) and the Bank of Latvia were among those to attend, with discussions focusing on bilateral cooperation, economic stabilization measures and the international loan.
Irena Krumane, the head of Latvian financial watchdog FKTK spoke positively of the meeting, saying top banks were now eyeing measures to ensure their long-term viability including raising capital.
"We were reassured that the management of those banks perceive the Baltics and Latvia as their home market and have a long-term strategy for operations in Latvia," she told the Baltic News Service.
RECOVERY WILL COME
Staffansson also said he remains confident that Latvia will recover from the current crisis.
Though the ambassador warned Latvia is facing the toughest economic times since regaining independence, he said the implementation of an economic stabilization program would eventually help pull the country out of crisis.
"In my opinion, despite this crisis, economies of the three Baltic states are a success story. These difficulties are temporary. It will be difficult for one, two, maybe three years," the ambassador said.
"It is a very unpleasant situation for Latvians now with all the budget cuts, and possibly the coming two years will be the most difficult ones after restoration of independence when the old system collapsed, but Latvia will recover if you implement the stabilization program," he said.
Staffansson also spoke out in defense of large banks, saying they had been unfairly blamed for Latvia's economic woes.
"Of course, it is not the fault of banks that Latvia has a crisis. It has been caused by several factors. Partly it has been caused by the global crisis and Swedish banks have little to do with it," he said.
Staffansson said current problems were also linked to the decision to peg the lat to the euro at a fixed rate rather than allowing the rate to fluctuate.
Sweden has traditionally maintained strong economic ties with the Baltics and was among the international donors to contribute to a 7 billion euro financial bailout package for Latvia.
Latvia's largest banks SEB Group and Swedbank are Swedish owned.
