Latvia is seeing stabilization of its economic environment as it reports quarterly GDP growth of 0.3% in the first quarter of 2010 for the first time since the end of 2007. This is an important improvement indicating that the sharp plunge in economic activity has stopped and a turning point has been reached. The recovery of the Latvian economy is intertwined with the gradual recovery in the world and improved competitiveness of Latvian producers. Further economic growth will be determined by export development to be followed by changes in domestic demand - a more sustainable model of growth.

“A number of important trends were visible during this period – a decreasing number of new loan overdues, a growing demand for loans, a rising awareness of the importance of savings and an increasing interest in savings and building a strong financial future” says Māris Mančinskis, Country Head of Swedbank Latvia. “The number of Swedbank customers has exceeded one million and our focus this year is on strengthening customer relationships, providing support and competence in facilitating the long-term financial stability of clients – both by overcoming the consequences of economic downturn and by taking care of future needs. In banking, the success factors are the long-term financial stability of customers, public understanding of finances. Thinking in long-term perspective is also fundamental for development of the whole economy.”

Result in brief
In Q2, the profit before provisions of Swedbank Latvia increased by 42 per cent quarter-on-quarter to LVL 20m.  The result of Swedbank Latvia for the period was a loss of LVL 11m, compared to a loss of LVL 46m in Q1. The result is a combination of improved economic climate and notable deceleration in the increase of non-performing loans.

The volume of customer deposits during Q2 remained stable, while loan portfolio decreased by 4%, as a result the loan-to-deposit ratio improved to 238 per cent during the quarter.

Loan portfolio decreased by 9 per cent from the beginning of the year, being a result of a combination of higher provisions, collateral sales in the non-performing part of the portfolio and the deleveraging trend. The rate of decrease in the loan portfolio has slowed in Q2. Although credit demand remains low in all three Baltic countries, a higher demand in lending was noted during the second quarter, and an increased consumer confidence is present in all the markets, partly impacted by seasonality effect.

Revenues
Income in Q2 has increased by 10 per cent to LVL 34m. Net interest income has been 9 per cent higher. Positive impact on net interest income was noted from lower funding and deposit costs though the negative impact of impaired loans is also still present. With higher customer activity, net commission income has surged by 12 per cent in Q2.

Credit quality
Credit impairments were LVL 33m during the period decreasing 51 per cent from Q1.
Impaired loans, gross, were LVL 1035m on 30 June 2010 (LVL 924m on 31 December 2009).  Monthly credit impairments levels are showing first signs of stabilization and the peak of credit impairments is expected to have been reached in the corporate portfolio. Regarding the private portfolio, the pace of rise in credit impairments continues to decelerate and expectedly credit impairments will peak in end-2010 as the inflow of impaired loans is directly dependent on country’s unemployment levels.

Expenses
Expenses decreased by 17 per cent to LVL 14m in Q2. The number of employees was reduced by 39 or 3 per cent during the quarter and the number of employees is now in balance with the present level of economic activity in Latvia. Depending on the speed of recovery, we might even see a slight increase of employees towards the end of the year. Many efficiency improvement related changes initiated a year ago require longer period to impact the cost level, such as the reduction of branch network and premises’ related expenses.
The cost/income ratio was 40% in Q2’ 2010. 

Outlook and strategies
Swedbank is committed to continuing its presence in the Baltic countries in the long-term. Our priority is building strong long-term relationship with clients, who consider Swedbank their core bank, providing quality financial guidance, tools and knowledge for money matters. A number of measures were introduced in 2010 to develop sustainable, customer-oriented and responsible operations of Swedbank Group in the Baltics. A shift is now being made to a more decentralised organisation where bank’s competence and authority in daily banking are increasingly close to the customer at customer service locations. Implementation of new customer relationship management way is designed not as a one-off event, but an ongoing process during 2010-2011.

New in 2nd quarter
As part of developing customer service, Swedbank, in cooperation with TNS Gallup, implemented a new tool for monitoring customer satisfaction and improving service in line with customers’ requirements – Customer Experience Management System. In 2nd quarter, the index measuring customer satisfaction with their experience in Swedbank branches reached 86.36 points, with highest evaluations going to attitude (89.94 points) and competence (88.57 points).

Swedbank also continues to improve the range and functionality of daily banking services. From 1 June, checking the balance in Swedbank ATMs is free of charge for Swedbank customers, which is in line with the general principle that Swedbank customers can enjoy the essential daily banking services for free. New functionality is added to Swedbank Internet Banking on a regular basis, such the opportunity to enter into Credit Life Insurance or to activate the MasterCard SecureCode service for a greater security in online shopping. Also Swedbank Internet Banking training in Latvian towns is continued.

During the period, Swedbank has been recognized as banking industry’s reputation leader in the Latvian business reputation top survey conducted by the newspaper Diena and Nords Porter Novelli. A number of support campaigns were carried out – as part of the ”Take-off” programme organized jointly by Swedbank and Riga City Council, grants for materializing their ideas were given to 11 business ideas, Swedbank gave away specialized safe driving training courses to 10 employees of the State Fire Safety and Rescue Service, and the “Day of Kindness”, which is organized by Ziedot.lv, Swedbank and LNT TV channel and has now became a tradition for whole Latvia, attracted LVL 194,527.90 in donations to help children thanks to the support and kindness of people.

Q3 2010 results of Swedbank will be published on October 21, 2010.
Swedbank Latvia result in Q2 2010 - www.swedbank.lv.
Swedbank Group’s Q2 2010 report - www.swedbank.com