Earnings boOst: Swedish banks report improving results as the region climbs out of recession.
RIGA - Newly released first quarter earnings numbers for the greater Nordic region banks are proving a mixed bag for an industry that has been battered in this global recession. Though there are signs of improvement locally, difficulties remain.
First quarter losses of the Latvian subsidiary of Nordea bank reached 8.5 million lats (12.1 million euros) after tax payments, while net interest income fell to 7.9 million lats, a decrease of 8.1 percent year-on-year, according to the bank’s published financial figures, reports Nozare.lv.
The bank’s net commission income rose by 4.2 percent in the first quarter, reaching 2.5 million lats, while the bank’s expenditures also rose, reaching 5.3 million lats, an increase of 17.7 percent.
Reserves against problem loans in the quarter rose by 12 million lats, bringing the total amount held in reserves to 72.7 million lats. The bank’s total issued credit fell by 2.6 percent to 2 billion lats, while total deposits fell by 11.3 percent to 459 million lats.
Turning to results at the headquarters of the three largest Swedish lenders, Nordea, SEB and Svenska Handelsbanken, which operate in the Baltic States, all reported first-quarter profits that exceeded analysts’ estimates as credit losses declined.
Nordea’s net income rose to 642 million euros from 626 million euros a year earlier, beating the average 463 million-euro analyst projection, reports Bloomberg. Handelsbanken’s profit climbed to 2.8 billion kronor (291.6 million euros) from 2.77 billion kronor. SEB’s net income fell to 674 million kronor from 1.03 billion kronor.
Nordea, SEB and Swedbank had posted soaring loan losses in Estonia, Latvia and Lithuania due to these countries’ steep recessions over the past two years. Swedbank, the largest lender in the Baltic states, said on April 27 that impaired credit and loans that are more than 60 days overdue have stopped rising in the region and that the real estate market has “shown signs of recovery.”
“The improved business environment has contributed to a decrease of loan losses and a stabilization of the growth of impaired loans,” Nordea CEO Christian Clausen said. “Net loan losses in 2010 are likely to be lower than in 2009. Credit quality continues to stabilize, in line with the macroeconomic recovery.”
Net loan losses at Nordea slid 27 percent to 261 million euros in the first quarter after lower provisions in Sweden, Denmark and the Baltic countries.
At SEB, they fell 19 percent to 1.9 billion kronor following a drop in Baltic credit losses. SEB said provisions for loan losses won’t exceed 5 billion kronor this year, after reaching 12.4 billion kronor in 2009.
“Following the in-depth review of all credits in 2009, we remain confident in our Baltic asset quality and work-out strategy,” SEB CEO Annika Falkengren said in a statement. “The lower provisions for Baltic credit losses, 1.4 billion kronor compared with 2.6 billion in the previous quarter, also mirrors the overall stabilization in the region.”
Swedbank, the largest lender in the Baltic countries, reported its first quarterly profit in more than a year and said earnings are likely to improve amid lower loan impairments. Net income of 536 million kronor compared with a loss of 3.3 billion kronor in the year-earlier period. Loan losses fell to 2.2 billion kronor from 6.8 billion kronor.
Swedbank was the Swedish lender hit hardest by the economic crisis. The bank has raised a total 27.5 billion kronor in two separate rights offers in the past two years to replenish capital and had losses in all four quarters of 2009. Until July last year, Swedbank relied on government guarantees for funding.
“We have increasing confidence in a continuous profit improvement, provided that the global macro economy develops according to current expectations without any significant deviations, especially in Latvia and Ukraine,” Swedbank CEO Michael Wolf said in the statement.
Impaired credit and loans that are more than 60 days overdue have stopped rising in the Baltics, the real estate market has “shown signs of recovery,” and the inflow of new impaired loans in Russia and Ukraine has been “low,” according to Swedbank.
Swedbank said on April 9 that it would leave the Swedish aid program, which guarantees as much as 1.5 trillion kronor of interbank lending, with “immediate effect” after the bank managed to raise funding in the market independently. Swedbank borrowed a total 421.2 billion kronor using the government guarantees and will hold parts of that debt until July 2014.
Loan losses at Handelsbanken, which was less affected by the credit crisis because it doesn’t have large operations in the Baltic States, fell 39 percent to 551 million kronor in the first quarter. The lender, which is expanding in the U.K. by adding branches, is the only major Scandinavian bank not to have raised funds from investors or received a state capital injection in the last two years.
Moody’s Investors Service said on April 26 that the level of problem loans for banks operating in the Baltic countries, led by Swedbank, and SEB and Nordea, will continue to grow in the coming quarters. “We expect loan losses to peak only later in the year, as asset quality indicators should start to stabilize with a certain time lag after these countries reach the bottom of their respective economic downturn,” reported Moody’s in a report.