Q4 2009 results of Swedbank Lithuania: the costs decreased by one fifth, future focus on productivity
2010-02-09 Back
The steep decline in economic activity ended, and signs of gradual stabilisation and fragile growth in exports were noted in Q4. The cumulative GDP decline from the peak of the cycle reached approximately 15 per cent in Lithuania. The underlying trends have turned. Domestic demand continues to decline as unemployment grew, but exports gradually picked up with improved competitiveness and a recovery of global growth.
Operational profit of Swedbank Lithuania decreased by 22 per cent to LTL 471m before provisions and taxes.
Swedbank Lithuania net result for the period was loss of LTL 1,181m mainly due to an increase in impairment losses, but also lower income due to the contracting economy.
Deposit and loan volumes
During 2009 more focus was given to increase of local funding. As a result, deposits increased by 5 per cent. Special campaigns and an active dialogue with customers helped the bank to maintain its market share at 28 per cent.
“The level of deposit amount returned to the level of September, 2008, level, this indicates the returning trust in Lithuanian banking sector”, - says Antanas Danys, Head of Swedbank Lithuania.
Lending volume decreased by 22 per cent during the period. The decrease is the result of a combination of higher provisions and reduced new lending. Higher provisions accounted for 6 per cent of the decrease. Net lending volumes will continue to fall in 2010 as a result of post-growth trend of deleveraging, as measured by the ratio of debt to income.
Credit quality
Impaired loans, gross, were 1393m LTL on 31 December 2009 (LTL195m on 31 December 2008). There was growth of mentioned loans during all 2009 in the real estate and transport sectors and during second half of the year private sector loan losses increased along with unemployment levels. The share of impaired loans, gross, was 10,4 per cent in Lithuania. The Baltic Restructuring and Recovery unit (BFR&R) achieved the set objective for 2009 to review distressed large corporates loan portfolio, including full risk assessment with the delivery of individual restructuring plans for the majority of the clients
Revenues
In 2009 revenues decreased by 24 per cent to LTL 753m. Throughout a year revenues were impacted by a low money market rates and lower lending volumes. The increase in non-performing loans is the second significant reason for the net interest income decline. As the bank has more Euribor-linked assets than liabilities, a reduction in Euribor affected net interest income adversely as well.
Expenses
Operating expenses reduced by 19 per cent to LTL 346m. Swedbank took broad measures to adapt organisation to slower economic activity. Detailed action plans with specific targets to decrease the expences. At the same time the economic downturn and the increase in problem loans raised expenses related to loan restructurings and recovery. These expenses are considered cyclical and will diminish as workout solutions are implemented and the economy recovers.
To adapt to smaller business volumes the number of employees was reduced by 14 per cent during the year, and the number of branches was reduced by 18 per cent. "Adjustments implemented in 2009 for the new market conditions and activity amount assured the bank in 2010 will be able to step from the intensive cost cutting to the increase for productivity", - Antanas Danys evaluates bank’s optimisation activity.
The cost/income ratio was 0.46 in 2009.
Outlook
The de-leveraging will continue in the country in 2010. The bank focuses on building strong long-term relationship with clients, who consider Swedbank their main bank, providing tools and knowledge for money matters. 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 2010.
The bank strategy remains same in regards to the commitment to the Lithuania market and it is Swedbank´s intention to stay in long-term in the Baltics.
Promoting financial literacy for the customers and society
In 2009 bank devoted a special attention to promote financial literacy and has launched an initiative of financial literacy named „My finances“ (www.swedbank.lt/manofinansai), furthermore Private finance institute was also established in the same year.
Swedbank has provided students with advices of responsible borrowing before it presented student loans with state guarantees. The senior customers were also on focus and in 2009 a special hour each day was devoted for them at the branches in order the senior customers got knowledge how to use the ATM’s, internet banking or payment cards. At the end of the year there was also presented a special programme for 7-13 year old children and a "Junior" payment card, that is an instrument for the parents to nurture the financial education of their children.
Closing paragraph:
Q1 2010 results of Swedbank will be published on April 27, 2010
