TALLINN - Swedish banks, among Europe’s worst performers 18 months ago as the risk of Baltic loan defaults threatened to swell losses, are enjoying their biggest gains in at least 15 years as the Baltic region rebounds, reports Bloomberg. Shares in Stockholm-based Swedbank, the biggest bank in Estonia, Latvia and Lithuania, have soared almost six-fold since the market bottom in March 2009, whilst SEB shares have increased three-fold during this time.
SEB and Swedbank are reaping the rewards of sticking with their Baltic expansion last year even as the region lurched into the deepest recession in the European Union. Latvia’s economy, the worst hit, may grow three percent next year after the toughest austerity program in Europe shrank the economy by 18 percent in 2009, according to JPMorgan Chase & Co. estimates.
Furthermore, some equity analysts see scope for further gains as the Baltic area rebounds from a fiscal crisis still crippling its European neighbors. “Both banks are seen as a recovery story,” said Kimmo Rama, a financial analyst at Evli Bank in Helsinki. “In the Baltic countries, credit quality has improved more rapidly than previously expected, and as a result loan losses have decreased strongly.”
Swedbank chief executive officer Michael Wolf said at the end of July that loan losses will probably fall further, after declining for five quarters from a peak of 2.16 percent of total lending in the first quarter of 2009. The bank was profitable in Estonia last quarter for the first time since late 2008.
On the other hand, SEB chief executive officer Annika Falkengren said last month that profit in the region, where her bank is the second-biggest lender, is “slowly but steadily” recovering.
Estonia’s adoption of the euro in January “will strengthen confidence in the country’s economy and increase interest in direct investment,” Wolf said. Latvia and Lithuania plan to join the euro in 2014.
At the same time, other Nordic banks also see growth potential in the Baltics. Norway’s DnB NORD said it will take over all of its DnB NORD joint venture, which operates in Lithuania, Latvia and Poland. The bank said it sees “good future earnings potential” in the Baltics and finds now “a good time to strengthen its position” here.