Things may be getting better around the world, but as can be seen in Swedish lender Swedbank’s results, loan impairments originating from the Baltic region are still growing meteorically:
Indeed, as the bank states:
Due to impairment losses on loans of SEK 8.2bn (0.4), Baltic Banking reported a loss of SEK 4.7bn, against a profit of SEK 2.3m in the same period last year. Of the impairment losses on loans, SEK 4.5bn (0.2) related to Latvia.
Interestingly, Swedbank notes it’s the corporate sector that appears most strongly hit — although the bank also says in its outlook that impairments should begin to slow from now:
The increase is expected to continue during the second half of 2009, although in a somewhat slower pace. Most of the increase is likely to be in the corporate portfolio. Impaired loans will rise in the household portfolio as well owing to higher unemployment. Regardless of market, the corporate portfolio has a higher share of impaired loans than the consumer portfolio.
That more optimistic outlook, however, doesn’t necessarily support the bank’s actions. For one, Swedbank is preparing the following:
In Baltic Banking, around 200 specialists will be employed in a special unit as of the end of August to manage actual and potential problem credits and repossessed collateral. Specialists are also being hired to manage repossessed properties. In Ukraine, about 40 people are employed in a similar unit. Specific action plans are being drafted for each problem loan. Also, several special purpose vehicles (SPVs) have been established to manage various types of repossessed collateral in the best way possible. A few repossessed properties have been placed thus far in SPVs. A similar structure is being set up in Ukraine.
Which of course sounds more like a crisis plan. This is especially so if you consider the bank also announced on Monday its second rights issue in less than a year, with a new bid to raise SEk15bn to bolster reserves.
Looking at Swedbank’s deposit position, it’s certainly understandable as to why they need the cash:
Deposits from the public, excluding repos and the Swedish National Debt Office, decreased during the first half-year by SEK 14bn, excluding exchange rate effects, and amounted to SEK 464bn on 30 June. The decrease was SEK 5bn or 23 per cent in Swedbank Markets, SEK 4bn or 1 per cent in Swedish Banking due to branch sales, SEK 1bn or 1 per cent in the Baltic countries and SEK 2bn or 40 per cent in Ukraine. The market share of deposits from private individuals was unchanged from the beginning of the year: 24 per cent in Sweden, 55 per cent in Estonia, 24 per cent in Latvia and 31 per cent in Lithuania. The loan/deposit ratio was 267 per cent on 30 June, an increase of 5 percentage points since the turn of the year.
Related links:
SG credit note on Swedbank – FT Longroom
S&P lowers Latvia’s credit rating as economy shrinks – FT