OREANDA-NEWS. October 26, 2009. The fastest economic slowdown is behind for Latvia, yet the depth of the fall at the time it will be reached, and the path of the recovery are all still under question..  The view on both global and Latvian economy has become more positive, but whether and how this emerging confidence will evolve depends largely on the government’s decisions in the near future, reported the press-centre of Swedbank.

Although the initial signs of macroeconomic stabilisation have appeared, influence of recession on the bank’s results is still present. Operational profit of Swedbank Latvia was LVL 20m in the 3rd quarter, while Swedbank Latvia net result for the period was loss of LVL 88m. The country results exclude financial market transaction, which are included in the aggregated result of Swedbank Group.

“Early signs of recovery are already visible globally, however, one must take into account that the pace of this recovery will be slow. In terms of volume, the Latvian economy has relapsed onto 2005 levels. What the society expects today of those who are at the forefront, including banks, is solutions, competence and responsibility,” notes Maris Mancinskis, the Head of Swedbank in Latvia, “As the Latvian financial market leader, we see it  our task to work as closely as possible with our customers and provide the most relevant solutions for both the client and the bank. Therefore we pay a great deal of attention to continued improvement of our operating efficiency in order to be strong partner for our clients. The number of Swedbank Latvia clients reached one million this quarter, and even in the present economic circumstances it is important for us to give our clients the best service, which today also means most relevant solutions, efficient alternatives and expertise.”

Deleveraging continues
Lending volume decreased by 7 per cent during the period. The decrease is in line with post-growth trend of deleveraging taking place in Latvia.  The bank?s actions to increase provisions and low amount of viable new lending projects have contributed as well. Baltic economies are still considered to be a region with higher risk as a consequence of regional downturn paired with global financial crisis, and the cost of funding remains considerably higher than a few years ago. The amount of deposits shrunk by 8 % in the 3rd quarter, as the total incomes of households continued to fall.

Credit quality
Even though there are first signals of slower growth of overdues, credit quality and net loan losses continue to be the main drivers for results in the present operating environment. Swedbank Latvia net loan losses were LVL 120m during the 3rd quarter. The rate of increase in impaired loans slowed during the period.

The bank has strong attention on reducing risks. The bank has up-graded its overdue loans management competences and processes. The Financial Restructuring and Recovery organisation is strengthened in the Baltic countries and specialized team equipped with specific international experience and processes is fully operational. The bank?s intention is to find solutions with customers at earliest possible time in order to mitigate the negative consequences of distressed debts

Revenues and expenses
Revenues were impacted during the quarter by a combination of higher provisions, low money market rates and lower lending volumes.

Revenue from core activities in this period amounted to LVL 41m, which represents a quarter-on-quarter reduction of 14 %, while operating expenses amounted to LVL 21m, which means an increase by 39 per cent. . Revenues in the 3rd quarter amounted to LVL 35m, and expenses  to LVL 15m.  In nine months of the year, revenue from core activities fell by 18% to LVL 128m, while expenses have decreased by 16% to LVL 53m, as a result of which income ratio of 41.8% was reached.

The measures taken in the 3rd quarter in order to balance revenues and expenses include specific targets to increase operational efficiency, maximise procurement efficiencies and limit employee benefits. To adapt to smaller business volumes the number of employees was reduced by 25 per cent during the first nine months, and the number of branches was reduced by 13%.

Outlook and strategies
The de-leveraging will continue in Latvia in coming months. The bank analysts expect slower growth in impaired loans closer to the year-end and leave 2009 behind as the most challenging year in terms of credit losses.

The bank focuses on long-term relationship with its clients, providing tools and knowledge for money matters and taking into account preventive efforts to limit the negative effects of the recession and finding a sustainable solution for all parties during the coming quarters.

The bank’s strategy remains the same in respect to the commitment to the Latvian market and it is Swedbank Group?s intention to stay in the Baltics long-term.

Messages to local client
As expected, in the 3rd quarter the number of Swedbank customers in Latvia reached one million. Targeted efforts have also been dedicated to improving customer service, taking into account the current needs of the customers and promotion of the most efficient service channels. As a result, the share of electronic settlements at Swedbank continued to grow during 3rd quarter and now stands at 98.26%. Today, as much as an average of 3.5 million e-payments are made monthly at Swedbank. To further develop the possibilities of electronic settlements, the Swedbank banknote acceptor (BNA) machines now offer the opportunity to pay several most popular types of bills for free, as well as donating to the charity portal Ziedot.lv. Like many other banks worldwide, Swedbank, too, offers all Visa card holders an opportunity to register with the safe internet shopping system “Verified by Visa”.

Functionality has also been expanded in Swedbank Internet Banking facility.  Now one can sign the 3rd pillar pension agreement online. A new life insurance services section with the option to sign family support insurance contracts has been created.  Via Swedbank Internet Banking, customers can find out information about their lease agreements and upcoming bills. At the time of publishing the Q3 results, Swedbank Internet Banking has been recognized as the best online banking facility in Latvia in the professional Metasite Business Solutions research Baltic E-Banking Report 2009 for the seventh consecutive year.

The 2009 result of Swedbank will be published on 9 February 2010.