A return to normal levels of credit losses will take years.
RIGA - Swedish banks - especially Swedbank and SEB - have paid a heavy price for lending to the Baltic region during years of red-hot growth, reports The Swedish Wire. Last year Swedbank, SEB and Nordea had losses in total worth 2.6 billion euros related to bad loans in the Baltics.
Economists say the worst may be over for the Baltics and banks expect the economic situation to stabilize as Estonia, Latvia and Lithuania are leaving the immediate crisis behind. Latvia’s stark recession eased in the fourth quarter of 2009 while Estonia bounced out of recession, the latest statistics show. Sweden’s Finance Minister Anders Borg said this month that the situation in Latvia, Estonia and Lithuania is “considerably better than it was three months, or six months ago.”
Peter Malmqvist, an independent stock market analyst, said “Credit losses are so tremendously big that it will take many, many years to reach normal levels.” With credit losses in the Baltics as large as 20 percent, it’s a long way to go to get back to normal levels of around 0.6 percent, however.
Swedbank’s chief risk officer Goran Bronner said in a conference call that the bank still faces high risks in Latvia and Ukraine despite economic improvements there. “I think that Latvia is still a risk area; they have an election year and, even though the economics are improving and have done so in the past quarter, I think there are still a lot of risks around,” he said.
“Also, Ukraine is a continuous risk area for us, especially in the development of sovereign risk pricing in the market place,” he added.
Until now Nordea, the Nordic region’s biggest bank, has been largely shielded from the worst of the economic crisis as the bank only has about three percent of its lending in the Baltics. But the bank said in its fourth-quarter report that “loan losses could remain at a high level also in 2010, as it is difficult to forecast when loan losses will start to decline.”
Skandinaviska Enskilda Banken (SEB), Sweden’s third-biggest bank, said asset quality in the Baltics is improving and that it sees “a clear improvement in the Baltic countries.” Also the country’s fourth largest bank, Swedbank, said that the economic situation was looking up, especially in Latvia and Ukraine, and that it just might be able to swing back into the black this year.
“We are more confident in the macroeconomic stabilization in the Baltic region. The past due volumes in all three countries have in principle stopped during the second half of 2009,” said Annika Falkengren, chief executive officer at SEB. “In the absence of any significant macroeconomic setback, the provision for credit losses should develop favorably during 2010.”
Swedbank reported total credit losses of 1.5 billion euros in the Baltics last year, SEB 979.4 million euros and Nordea 193.8 million euros, according to business daily Dagens Industri.