OREANDA-NEWS. July 27, 2010. The situation of economy of Lithuania has stabilised and business environment is gradually improving. Recovery of foreign markets considerably improved export results.  Local demand remains weak, but the bottom has already been reached, reported the press-centre of Swedbank.

“Despite the consumption keeps reducing but in the present situation the government can't afford larger expenditures to stimulate the economy. The main medium-term challenge of Lithuania is considerable reduction of the country’s budget deficit and limiting the growth of debt of the government sector. This must be done in order to maintain positive tax regime in future and the country’s competitiveness in the region and also to build strong foundations for balanced development. The stable legal environment is also very important for sustainable economic growth”, - defines the prospects for the country’s economy Swedbank?s Country Head in Lithuania, Antanas Danys.

Short summary of the results
In H1 2010, Swedbank Lithuania`s operational profit is LTL 181 m or 36 per cent lower compared with the same period a year ago. Due to provisions for potential loan losses in H1 2010 Swedbank Group in Lithuania incurred loss of LTL 142 m (in H1 2010 LTL 352 m).

During the first half-year revenues decreased by 23 per cent to LTL 341 m, while operating expenses remained stable. Client deposits increased by 11 per cent during the period, while the loan portfolio declined by 15 per cent.
 
Volumes
Loan portfolio decreased by 7 per cent from the beginning of the year. The decrease is the result of a combination of collateral sales in the non-performing part of the portfolio and reduced new lending. Lending market share of Swedbank declined by 0.5 pp during six months mainly due to decline in the leasing portfolio. The private lending markets share remained unchanged while corporate lending market share declined.

Deposits increased by 8 per cent from the beginning of the year and Swedbank’s market share increased by 0.9 per cent. As a result of increasing deposit volumes and reduced lending, the loan-to-deposit ratio improved to 126 per cent during six months.

Revenues
Net interest income declined 42 per cent to LTL 153 million from the same period last year but there was a 2 per cent increase in comparing first and second quarter of 2010. Positive impact from falling interest rates can be seen and the positive effect of lower funding cost was captured in the results though the impact of declining loan volumes has increased over past year. There is still some negative impact from impaired loans on net interest income.

Credit quality
In H1 2010 the bank formed LTL 349 million of provisions (in H1 2009 LTL 708 million). “The peak of credit impairments is expected to have been reached in the corporate portfolio and the positive effect of the recovery on the private portfolio will be seen later when unemployment levels stabilize”, – A.Danys identifies the trends related to credit portfolio quality.

On 30 June 2010 credit impairments were LTL 2 787 m and were less in LTL 10.4 m compared to Q1 2010.

The impaired loans (i.e. loans overdue for more than 60 days), gross were LTL 2 068 m on 30 June 2010. Total share of impaired loans of Swedbank Group in Lithuania amounted to 13.3 per cent.

Expenses
The number of employees was reduced by 182 (7 per cent) during six months, and the number of branches was reduced by 1 per cent to 98. Many initiated efficiency improvement related changes such as the reduction of branch network require longer period to impact the cost level. The cost/income ratio was 0.47 in H1 2010. 

The Bank focuses on the development of sustainable economic environment aims
With an aim to develop sustainable economic environment and meet the expectations of society Swedbank Lithuania participated in several important initiatives during first half-year. Firstly, the bank launched and was actively involved in the Lithuanian capital market development initiative aimed at strengthening the securities market and enable local business community to attract funds and reduce dependence of Lithuania’s economy to bank loans. Secondly, the bank actively supported and participated in drafting the Code of Good Banking Practice to improve the protection of consumer rights in the market. Thirdly, through cooperation with Lithuanian Junior Achievement the bank promotes the entrepreneurship among youth and supports Junior Achievement?s Project of Educational Companies of Students

Q3 2010 results of Swedbank will be published on October 21, 2010

Link to the Report on Swedbank Group results: www.swedbank.com