OREANDA-NEWS. July 23, 2009. In consideration of the macroeconomic situation of the country Swedbank in Lithuania has increased provisions for loan portfolio and reduced costs by 28%, reported the press-centre of Swedbank.

As it was expected, in Q2 2009, the economy in Lithuania contracted considerably, which influenced the level of insolvent clients of H1 in the banking system of the country at large. Still, certain signs of stabilisation of economy are already visible.

Firstly, in H1 corporate clients of the Bank adjusted their business volumes to new economic reality and reduced their business and operating costs. Secondly, gradual stabilisation of the situation in the export markets of Lithuania allows the recovery of demand for export goods which is likely to accelerate the growth of industrial sales in Lithuania.

According to the recently published macroeconomic forecasts of Swedbank - Baltic Outlook Lithuanian economy should reach the bottom in H2 2009 and from summer of 2010 GDP reduction should be finally replaced by growth.

Results in Lithuania were predetermined by provisions for loan portfolio 
Similarly to the first three months of the year, the second quarter of 2009 was characterised by deterioration of macroeconomic conditions of the country which predetermined the respective provisioning policy and financial performance of the Bank. During the first half of this year Swedbank in Lithuania earned LTL 284.4m operating profit before taxes and provisions. Losses resulting from provisions against possible loan losses incurred by the Bank in 2009 amounted to LTL 351.7m.

By end of Q2 2009, compared with the same period of the previous year, income of Swedbank in Lithuania reduced by 13% to LTL 440.6m, and expenses of the Bank - by  28% to LTL 156.2m.

In H1 the Bank significantly strengthened its capital base including in it the profit of 2008 - LTL 412.4m. The capital adequacy ratio of the bank's financial group during the whole period was more than 12% and exceeded by 1.5 times the minimum of 8% established by the Bank of Lithuania.

Loan losses  
Change in asset quality and generation of provisions were the main factors which influenced the operating results. After H1 2009, Swedbank in Lithuania formed LTL 708m provisions, including the amount of LTL 259m of additional general provisions.

"The growth in share of bad loans in Q2 followed the expectations for Lithuania and the Baltic States. Given the present macroeconomic context we expect that growth of these loans in H2 2009 will slow down. As we have already announced, seeking to enhance the competence and processes of work with insolvent clients and to reassess relationships with all clients we have set up the Financial Restructuring and Recovery Division for Baltic Banking which currently operates at full capacity. Our aim is to provide maximum support to clients who maintain partnership relations with us financing viable projects and solvent clients and restructuring existing debts to mitigate negative consequences of economic recession", - emphasises Antanas Danys, Head of Swedbank in Lithuania.

Deposit amounts remained stable and loan portfolio contracted
By end-Q2 2009, the amount of deposits, compared with end-2008, remained stable manifesting only a minor growth of 0.5% to LTL 11.2bn. The Bank retained its 28% share in the market of time deposits of individuals.

Reduction of loan portfolio in Q2 2009 was almost the same as in the previous quarter - by 3% to LTL 18.6bn.

Borrowing needs, which started contracting in Q1, kept reducing. "Reduction of demand for borrowed funds will most probably continue in the coming quarters. Most probably the demand will reduce in those sectors to which largest investments were made previously, because these sectors already now are incapable of utilising their capacities. These sectors first of all include real estate, residential buildings and office development as well as cargo transportation sectors", - says  A. Danys.

Due to increased capital price for Lithuania, the price of bank's resources for lending increased as well. The costs increased of new loans as well as already provided. Therefore the Bank will seek to review the margins of current loans following the market realities. Given the current economic situation and pursuing conservative crediting policy the Bank will further finance viable projects and solvent clients.

"We have already granted over LTL 2376m credits to business during 2009. The main aspects to which we pay attention when granting credits are project viability and relevance. For example, this year we have already provided the financing in the amount of LTL 80m for the establishment of the park of wind power plants, and in Q2 started improving financing conditions for private clients purchasing real property objects which have been financed by us", - says A. Danys.

Income and cost management 
In H1 the costs of the Bank reduced more than its income. In 2009, compared with H1 2008, the Bank reduced its personnel costs by 47% as a result of 9% reduction of staff numbers and refusal of additional employee incentives. Furthermore, the Bank is optimising its branch network - in the first six months of 2009 the number of customer servicing centres diminished by 4% to 115 units.

"It is obvious that when the economy of Lithuania is contracting, or to put it otherwise, is becoming smaller, the demand for banking products also reduces, as well as banks themselves. Our operation costs have been growing during several years and therefore maintaining and increasing productivity means that it is necessary to minimise costs trying to work in a wiser and more efficient manner and where necessary - to reduce staff numbers and branch network", - says A.Danys.

According to A. Danys, the bank optimises its branch network first of all thinking about its clients, and therefore it has developed new services for their convenience, for example, since June renewed debit cards are sent by post and clients do not have to visit the Bank's branch. Swedbank internet bank has also been upgraded offering new functionalities and services to its users. The network of cash depositors has also been extended and at the end of June reached amount of 56.

Attention to the client through education in the area of management of personal finances
This quarter particular attention was devoted to education on personal finance management matters. It is noticed that now people have become more active in seeking this type of information, advice and specific instruments which would assist them in keeping their home accounting. The Bank has initiated the educative project of management of personal finances over television, bank experts are speaking over media channels and directly informing the clients.

In Q2 2009, the Bank also launched the "Seignior hour" programme. Each business day between 14.00 and 15.00 bank clients age 60 and older - seigniors - are offered special service. Bank employees are ready to give detailed answers to questions which arise to these clients, to offer the services most suitable to them, to offer the services that corresponds best to their needs or to show how to use payment cards or electronic banking.