Q1 witnessed an improvement, as the Moody’s Investors Service rating agency raised its credit rating outlook for Estonia, Latvia and Lithuania from negative to stable as their economies recovered faster than anticipated. Standard and Poor’s and Fitch Ratings also raised their outlook for Estonia, Latvia and Lithuania to stable from negative due to signs of economic recovery in the past two months, as well as the steps the government has taken to curb budget deficits.

In the opinion of Swedbank economists, the recession may have already ended in the first quarter. However, the road to recovery will be bumpy, and at first growth will be fragile as development varies considerably from industry to industry. Latvian exports are increasing, contributing positively to the overall economy. Capacity utilization rates are increasing in export industries, with the timber industry, for example, reaching pre-crisis production volumes. The labour market is exhibiting signs of stabilization, and unemployment is no longer rising, as of the end of 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. This increases the risk that rather strong temporary growth immediately after the recession may be followed by weak growth. Implementation of reforms with a medium to long-term perspective enables 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, lasting stabilization and growth require 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. ”

Summary of interim results
The operating income of Swedbank Latvia amounted to LVL 14 million before provisions in the first quarter of 2010. Swedbank Latvia produced a loss, after provisions, of LVL 45 million in the quarter. Lower credit impairments and stabilising core business were the main trends in the first quarter.

Deposit and loan volume
Customer deposits remained stable, as they had since 2009, showing that the Latvian population is becoming increasingly aware of the importance of savings.

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

Credit quality
Gross impaired loans totalled LVL 972 million on 31 March 2010 (LVL 925 million on 31 December 2009). There are noticeable differences between corporate and private portfolios. In the corporate segment, the highest percentage of impaired loans remains in the real estate and construction sectors, with peak for the corporate portfolio expected in the first or second quarter of 2010. The positive effects of the recovery are expected to be delayed, as payments on impaired loans are highly dependent on unemployment level trends. The gross share of impaired loans was 25 per cent in Latvia.

Revenues
Since the previous quarter, overall income in the first quarter decreased by 10 per cent to LVL 31 million. Reduced net interest income is still under pressure due to a decrease in the loan portfolio. Net commission income and net profit from financial positions was lower due to seasonally reduced customer activity as compared to the activity at the end of the year.

Expenses
As compared to the previous quarter, overall expenses fell by 9% to LVL 16 million in the first quarter. The economic downturn and increase in distressed debt increased the 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 3 per cent to 40, during the quarter, and the number of branches remained the same as at the end of 2009.
The cost/income ratio was 0.54.

Business developments and community & customer relations
The bank will focus on building close long-term relationships with customers, who consider Swedbank to be their home bank, and continuing to work on providing necessary guidance and services. Credit management in the next quarters will stress taking preventive actions to limit the negative effects of the recession and finding sustainable solutions for all parties. The bank’s strategy remains strongly committed to the Latvian market and it is Swedbank´s intention to stay in the Baltics permanently.

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

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

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

The percentage of electronic settlements at Swedbank continues to grow, reaching 98.6 per cent at the end of the 3rd quarter. Of card transactions, 70 per cent represented purchases rather than cash withdrawals. For our customers’ convenience, Swedbank provides a vast ATM network with 296 cash withdrawal and 76 cash deposit ATMs.

Encouraging savings is one of the bank´s priorities, especially in light of the economic situation. In March, the Swedbank Life Insurance SE Latvian branch, after having earned a profit of 709,000 Euros in 2009, decided to distribute profit bonuses to all customers who have guaranteed-income savings contracts. In the pension area, In February 2010, Swedbank became the first bank to provide public accessibility to the investment vehicles of the 2nd pillar pension funds, Stability and Dynamics, each month. This enables our customers to keep track of where their pension assets are invested and 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 a long-term approach to investing.

In addition, Swedbank continued to participate in a range of projects aimed at encouraging business was continued. Swedbank and Riga City Council signed an agreement for extending the Take-Off grants programme to 2010, thus continuing to facilitate the development of SMEs in Riga. In the first quarter, Swedbank, in cooperation with SEB Bank, signed a EUR 104 million agreement with the European Investment Fund for financing Latvian SMEs.

A number of support campaigns were implemented, including Internet banking training in Swedbank branches and several libraries in Latvia, the inclusion of a new presentation about on-line safety in the Swedbank School Programme, the Let’s Support Our People Together! campaign of good wishes to the Winter Olympic Games participants, participation in Earth Hours global environmental protection campaign, support for safe driving training to various target groups, support for the Mission Possible educational programme, and many others.

Q2 and reports online
The results of Swedbank for Q2 2010 will be published on 22 July 2010.
Swedbank Latvia´s results for Q1 2010 can be found at www.swedbank.lv.
Swedbank Group’s Q1 2010 report can be found at www.swedbank.com.