Baltics too small to damage Swedish economy

  • 2009-10-08
  • Staff and wire reports
RIGA - Loan losses have peaked as deterioration in the Baltic economies has ended, says Nordea Bank's Chief Executive Officer Christian Clausen. "The recession in the Baltics is still very severe, very difficult, and a lot of people are really having a tough time," said Clausen, warning however that "an improvement will take a long time," reports Bloomberg.

Nordic banks are facing soaring loan losses in the region. Nordea's net loan losses jumped to 425 million euros in the second quarter, up from 36 million euros a year earlier. Clausen says that loan losses have probably peaked, and that "loan losses in 2010… will not change significantly in a negative direction from here."

Sweden's economy and its banking stability aren't at risk from the recessions in the Baltic countries, says Sweden's Riksbank Governor Stefan Ingves. "The Baltics are not really a threat to what's going on in the Swedish economy because they are small, in an economic sense," he said.

"In economic terms, relating to the Swedish economy, what's going on there is quite manageable." Sweden, the Nordic region's largest economy, will contract 5.2 percent this year, the most in more than half a century, say government estimates. The Riksbank has increased outstanding loans to banks by about 363 billion kronor (35.9 billion euros) to satisfy demand for credit after market funding dried up.
Moody's rating agency has maintained its negative outlook for the banking systems in the Baltics, saying credit conditions will likely worsen over the next 12 to 18 months. "The three economies have been undergoing a severe recession, which is exerting significant pressure on the banks' asset quality, profitability and capitalization," say analysts Reynold R. Leegerstee and Eeva Ketola.

"The rating agency expects to see a continued significant increase in problem loans in the region, with the real estate and consumer-lending segments being among the hardest hit by the economic slowdown." They add that "The number of corporate bankruptcies has increased rapidly in all three countries and [we] expect this trend to continue..."

Given signs of a global recovery, Nordea says it may start to invest again in its operations in the Nordic region, to boost income growth and improve efficiency, after stopping investments amid the financial crisis," said Clausen. "We wanted to take caution, be aware of risk and slow down the speed a little bit in our expansion," he said.

Clausen says the bank is "getting closer" to starting investing again in the region. "It won't be two or five years; it will be before then," he said.