Loan losses will grow

Erkki Raasuke, CEO of Swedbank Group in Baltics, said today at Business Plan 2009 conference that loan losses will grow fast in 2009 and volume of loan portfolios will remain at the same level with 2008 or is lower, writes Äripäev.

“Profitability will be lower compared to 2007. In hindsight it’s possible to say there was some over employing back in 2007, although it was known sales volumes reduce. But recruiting went on from old inertia," said Raasuke.

According to Raasuke they tell foreign investors that in next 18 months there will be only unpleasant news about quality of credit.

“Today we may surely say that business of home loans was priced wrong, primarily on Latvian market, in Estonia little less. When we look at overdue loans today, we may think that there are more weak loans than business scheme would have allowed.”

He brought an example that if one client of hundred faces difficulties when paying back the loan, it isn’t a big problem yet, when two, then rate of return of own capital isn’t achieved and if three can’t pay their loans back, all the business is under water. “We’ve missed that when there was 98 good borrowers for every two that were bad, then today it’s perhaps 50,” said Raasuke.

According to one possible scenario Swedbank is relying on, real estate market will gain strength in the middle of 2010 and unemployment rate will be 10 pct by the end of next year. “We’ve based our plans on assumine that growth of GDP will be negative in 2008 and 2009. In past 18 months very optimistic forecasts have been made, which have been much more negative in reality,” said Raasuke.

He said Swedbank makes it’s future forcasts in cooperation with IMF, who has good work with exploring crisis. They compared countries like Estonia, which have experiences similar crisis before. In that situation prices of real estate fell averagely 30 pct and nadir lasted about 4 years. “When bubble of housing market has exploded, it means downturn, in other words negative growth,” said Raasuke. Real estate, contruction and finance intermediating suffer the most.

“What catches eye if that restoring is slower then financing is more based on bank loans than own capital. Our growth is mainly financed on foreign capital,” told Raasuke. Rate of return of Swedbank’s own capital is 20 pct and bank hasn’t changed that.

“We should earn EEK 4 bln profit, for not to destroy directly investors’ assets. Our own capital is EEK 30 bln, currently own capital expense is 13 pct. Our growing goals must be looked over. From four goals – growth of the profit, rate of return of own capital, relation between income and expenses and flowrate of credit – two will be changed. Perhaps most regrettable is that flowrate of credit will not be true. We want to stick to relation between profit and expenses,” said Raasuke.

Source http://balticbusinessnews.com/default2.aspx

Add comment:

Subject:
Name:  
email:
Code: 

Remark:

Email not will be shown.

Tags forbidden.