OREANDA-NEWS. May 04, 2010. An improvement in the sentiment was notable in Q1. The ratings agency Moody's Investors Service raised the credit rating outlook for Estonia, Latvia and Lithuania from negative to stable as the economies recover faster than anticipated. Rating agencies Standard and Poor's and Fitch Ratings also raised their outlook for Estonia, Latvia and Lithuania to stable from negative as in the past two months there are economic recovery signs and the government has taken steps to curb budget deficits, reported the press-centre of Swedbank.

Swedbank economists assess that the recession might have already ended the 1st quarter. However, the road to recovery will be bumpy and at first growth will be fragile as development differs considerably from industry to industry. The recovery of exports in Latvia becomes more extensive, having a positive effect on the overall economy. Capacity utilization rates are increasing in export industries, for example in timber industry the production volumes have returned to pre-crisis levels. Labour market is exhibiting signs of stabilization, and the rise in unemployment has stopped as of end-March. However, domestic market oriented industries are still struggling as demand is weak. The main risk to economic growth is delays in productivity and in structural reforms facilitating sustainable development. It increases the risk that a rather strong temporary growth immediately after recession is followed by weak growth. Implementation of reforms with a medium to long-term perspective enables a faster and more balanced economic growth.

“In line with our expectations, Latvia's economic situation continued to improve in the first quarter of this year, however a lasting stabilization and growth requires continued prudent efforts both in the country's economy and in business. The long-term goal is a dynamic and sustainable national economy” says Maris Mancinskis, the Head of Swedbank in Latvia.  “Given today's economic reality, our task as a bank is to identify with utmost precision the needs of every customer and to provide the most appropriate solution. The crisis has also taught some valuable lessons, such as raising awareness of the importance of savings. Hence, the future is a balanced financial development – for the bank, for businesses, for the people and the economy as a whole”.

Short summary of the result
Operational profit of Swedbank Latvia amounted to LVL 14 m before provisions in the first quarter of 2010. The result of Swedbank Latvia after provisions was a loss of LVL 45m in the quarter. Lower credit impairments and stabilising core business were the main trends in the first quarter.

Overall income in the first quarter decreased quarter-on-quarter by 10 per cent to 31m lats, while overall expenses fell by 9 per cent to 16 m lats.

In the first quarter of 2010 the gross credit portfolio shrunk by 3 per cent, as a result of continuing post-growth trend of deleveraging, as measured by the ratio of debt to income.

Customer deposits, however, remained stable as it was evident already in 2009 that the society is becoming increasingly aware of the importance of savings.

Revenues
As compared to the previous quarter, overall income fell by 10 per cent in the first quarter. Reduced net interest income is still under pressure due to decrease of loan portfolio. Also, net commission income and net profit from financial positions was lower due to seasonally reduced customer activity as compared to activity at the end of the year.

Credit quality
Impaired loans, gross, were LVL 972m on 31 March 2010 (LVL 925 m on 31 December 2009). There are noticeable differences between corporate and private portfolios. In the corporate segment, the highest share of impaired loans remains in the real estate and construction sectors and the corporate portfolio's peak is expected to be reached during Q1/Q2 2010. Regarding the private portfolio, the positive effect of the recovery was expected to be delayed while the inflow of impaired loans was highly dependent on the development of unemployment levels. The share of impaired loans, gross, was 25 per cent in Latvia.

Expenses
As compared to the previous quarter, overall expenses fell by  9% in the first quarter. The economic downturn and increase in distressed debt gave rise to bank's expenses related to loan restructuring and recovery. These expenses are considered economic cycle related and will diminish as the economy recovers.

The number of employees was reduced by 40 i.e. 3 per cent during the quarter, and the number of branches remained the same as compared to the end of 2009.

The cost/income ratio was 0.54.

Outlook and strategies
The bank will focus on building close long-term relationships with clients, who consider Swedbank their home bank, continuing to work on providing necessary guidance and services. Credit management taking into account preventive efforts to limit the negative effects of the recession and finding a sustainable solution for all parties is also in the focal point in coming quarter of 2010.

The bank's strategy remains same in respect to the commitment to the Latvian market and it is Swedbank's intention to stay in the Baltics on a long-term basis.

New in the first quarter
In view of how economic downturn affects the income of households, Swedbank continued to be active in supporting and developing debt restructuring solutions for borrowers whose financial strength has worsened. In the first quarter, the bank helped, with a range of solutions, a total of 2804 mortgage lending and car lease customers, besides assistance with restructuring short-term loan commitments. The customer questionnaire conducted during this period shows that 87% of borrowers who needed debt restructuring are completely satisfied with the solution received.

In the first quarter, efforts continued to make customers' financial daily life increasingly convenient, as well as improving customer service. Thanks to customers' support and responsiveness, Swedbank was recognized as one of the most-praised businesses in the nation-wide campaign Praise Good Service! taking place in March.

In the light of growing popularity of electronic settlements, Swedbank constantly supplements Internet Banking offers. Among the added functionalities are the opportunity to create savings for the child’s future, the service My Data in the Cadastre, and the chance for Direct Debit customers to not only view the existing contacts and their terms but also see detailed information about invoices.

The share of electronic settlements at Swedbank continues to grow – at the end of the 3rd quarter it stands at 98.6 per cent. Also, 70 per cent of all card transactions were purchases not cash withdrawals. For customers' convenience, Swedbank provides a vast ATM network where 296 are cash withdrawal ATMs and 76 are cash deposit ATMs.

Encouraging savings is one of the bank's priorities, also taking into account the economic situation. In March, Swedbank Life Insurance SE Latvian branch decided to grant bonus profit for the last year to all customers who have the guaranteed-income savings contracts, which was due to the fact that last year the company had earned a profit of 0.709 million euros. In the pensions area, Swedbank, by making the investment structure of the 2nd pillar pension funds Stability and Dynamics publicly available each month starting from February, become the first bank in Latvia to do so. Thus, customers can keep track of where their pension assets are invested and what is the structure of their pension schemes. Notably, on 10 March the Swedbank 2nd pillar pension scheme Dynamics reached a record-high yield of +29.54%, generating the highest annual yield among pension schemes in Latvia and clearly demonstrating the importance of long-term approach to investing.

Also participation in a range of projects aimed at encouraging business was continued. Swedbank and Riga City Council signed an agreement for extending the grants programme Take-Off to 2010, continuing to facilitate the development of SMEs in Riga. In the 1st quarter, Swedbank, jointly with SEB Bank, signed a EUR 104m agreement with the European Investment Fund for financing Latvian SMEs.

A number of support campaigns were carried out: internet banking training in Swedbank branches and several libraries in Latvia, the inclusion of a new presentation about safety in electronic environment into the Swedbank School Programme, the campaign of good wishes to the Winter Olympic Games participants Let's Support Our People Together!, participation in the global environmental protection campaign the Earth Hour, support for safe driving training to various target groups, support for the educational programme Mission Possible, and many other.

Swedbank's Q2 2010 result will be published on 22 July 2010.

Swedbank Latvia's result in Q1 2010 - www.swedbank.lv.
Swedbank Group's Q1 2010 report - www.swedbank.com