Performance of SEB Group in Latvia in the third quarter of 2022

Ieva Tetere: The past nine months were characterised by growth and far-sighted investments 

In the first nine months of this year, SEB Group issued EUR 700 million in financing in Latvia, which is 22% more than in the first nine months of 2021. SEB Group's total loan portfolio in Latvia increased by 4.5% to EUR 3.1 billion in the first nine months of 2022, while total deposits grew by 4.2% year-to-date to EUR 4.2 billion, according to the latest financial performance of SEB Group in Latvia.

“Despite the geopolitical and economic turmoil, the last nine months have been stable and growth-oriented for both the bank and most of our customers. It is encouraging that some customers have responded to global challenges with far-sighted and targeted investments, both in measures to improve energy efficiency and in the modernisation of production facilities. More pragmatism can also be observed in the residential sector: people are paying more attention to energy-efficient housing and are also looking at the wider management costs of newly purchased homes. At the same time, we should be aware that the biggest challenges still lie ahead, when economic downturns and gloomy moods can be expected in the winter months. However, times of crisis and uncertainty also offer great opportunities for companies to rethink their previous activities and behaviours. I would therefore encourage companies, in particular, to use this time to rethink their management models and review their supply chains,” says chairwoman of SEB banka Ieva Tetere. 

Energy efficiency sets the tone for the real estate market

Despite external circumstances, customers continued to show interest in housing loans in the first nine months of this year – the loans granted to individuals for the purchase or repairs of housing increased by 6% year-on-year to EUR 142 million. Residents showed more interest in housing in new projects and properties with a smaller area, which contradicts the trend at the height of the pandemic COVID -19 when properties with a larger area were preferred. Customers also carefully evaluate the cost of maintaining the property even before they buy it, evaluating the rent and rates as well as the type of heating used in the building, the energy efficiency of the building, and other aspects.

However, with the onset of autumn, activity in the real estate market has declined, which can be explained by the willingness of individual customers to wait and observe further market behaviour. Prices for larger property areas as well as for "premium" properties have also decreased, while prices for serial apartments have minimally decreased or stagnated. A relatively large number of apartments have come onto the market in this segment - in some areas of Riga, supply has even doubled. 

As the cost of energy resources increases, so does the desire of customers to buy or build energy-efficient homes. As a result, the number of SEB Green Home loans has increased significantly, with financing granted in the first nine months of this year reaching almost one million euros. Demand for "green" loans is growing, not only for apartments but also for home construction, and we expect demand for loans for energy-efficient homes to continue to rise. 

Sustainability meets savings — interest of businesses in green products is growing

The third quarter of 2022 was also a very dynamic period for the small and medium-sized enterprise (SME) segment. Compared to the nine months of last year, loans increased by 22%, reaching EUR 186 million. New financing for energy efficiency improvement projects in multifamily buildings also quadrupled compared to the third quarter of last year. This was due to the termination of the existing energy efficiency programme for multifamily buildings, as a result of which customers hastily adjusted their cost estimates and obtained financing 

Due to the increase in commodity prices, the need for working capital, which is required to ensure the operation of businesses, has doubled. Currently, we find that SME customers' interest in financing is not waning, and long-term investments are being made in areas such as energy efficiency, waste management, and plant modernisation. We are finding that customers are increasingly recognising that sustainability goes hand in hand with saving, so their interest in the green products offered by the bank is also increasing. 

Financing volumes have also increased in the large corporate customer segment - in the third quarter of this year, SEB banka issued financing in the amount of EUR 331 million, an increase of 29% compared to the previous year. A significant part of the new funds was used to finance working capital, which is only natural given the current inflation rate and energy commodity prices. The current situation forces companies to use more free funds to finance working capital, leaving fewer funds available for new investments and increasing production capacity. This is confirmed by a survey conducted by SEB banka this fall among the CEOs of the largest Baltic companies. According to the results of the survey, companies are more cautious for the next 12 months than they were last year, but it is good news that about half of the respondents confirmed that they were willing to continue investing in their home country. In this regard, we welcome the programme implemented by LIDA and ALTUM "Investment loans for large and medium-sized enterprises with a capital discount to promote competitiveness", which encourages companies to invest in the near future.

Nearly one-third of new financing in the large corporate segment is for commercial real estate, with the office complex VERDE accounting for the largest share. However, we expect new development projects to be smaller in scale, as tenants are not yet willing to pay rents at a level that would provide the developer with a reasonable return given the high cost of construction. Similarly, demand for energy-efficient commercial space is likely to increase as tenants pay lower utility costs, while owners of energy-efficient facilities will seek to fill space, which may even lead to a decline in rents for individual properties.

Performance for the first nine months of the year ended

- SEB Group’s revenue in Latvia reached EUR 88.5 million, 11% more than in the 9 months of 2021 (before the impact of the sale of subsidiaries);

- Profit before provisions amounted to EUR 50.2 million, 17% more than in the 9 months of 2021 (before the impact of the sale of subsidiaries);

- Operating profit after tax and provisions reached EUR 51.5 million in the 9 months of 2022, 2% up from a year ago (before the impact of the sale of subsidiaries);

- At the beginning of the year, a unified insurance and savings group was established in the Baltic States, as a result of which SEB Life and Pension Baltic SE became the sole shareholder of AS "SEB atklātais pension fonds" and "SEB Investment Management" IPAS and took over the shares of the previous shareholder AS “SEB banka”. Including the impact of the sale of SEB Group subsidiaries as part of the reorganization, SEB Group's total revenue in Latvia for the nine months of 2022 amounted to EUR 102.5 million, operating profit after tax and provisions amounted to EUR 65.5 million;

- Costs for 9 months amounted to EUR 38.3 million, up 4% from a year ago (before the impact of the sale of subsidiaries);

- Provisions for expected credit losses for the period from 1 January to 30 September were reduced by EUR 2.9 million;

- Total deposits at SEB banka amounted to EUR 4.2 billion at 30 September 2022, 10% higher than the amount of deposits at the end of September 2021;

- The total loan portfolio amounted to EUR 3.1 billion at the end of September 2022, up by 2.4% from the end of September 2021;

- SEB Group's assets in Latvia amounted to EUR 5.1 billion at the end of September 2022 and SEB Group's assets in Latvia amounted to EUR 477 million, an increase of 19% and 3%, respectively, compared to 30 September 30 of the previous year.