Analytics, Banks, EU – Baltic States, Financial Services, Investments, Markets and Companies

SEB analyzed all non-financial companies on the Baltic Main List and compared the practices of listed companies with those of listed companies in Sweden, Germany and the United Kingdom, the bank said. The sample included 13 companies officially listed on the Nasdaq Baltic stock exchange in Lithuania, four in Latvia and 12 in Estonia.

Baltic companies also operate in the global market and therefore are also exposed to risks related to financial markets, that is exchange rate, interest rate and commodity price fluctuations. SEB analyzed the financial statements of selected Baltic companies and observed how they manage risks.

The results of this analysis were compared with the financial risk management practices of the primary enterprises on the German DAX, Swedish OMXS30 and UK FTSE100 equity index lists.

The analysis revealed that only 28% of all selected Baltic companies manage loan interest rate risk by converting variable interest rates into fixed interest rates and mostly use interest rate swap transactions to do so.

At the same time, almost all major companies listed on the German, Swedish and British stock exchanges actively manage interest rate risk in the form of derivative instrument transactions, ranging from 85 percent to 96%.

Some Baltic companies, which have currently been borrowing at variable interest rates, are exposed to this risk, but according to SEB say they are actively monitoring the market situation and will take steps to manage and mitigate this risk if interest rates start to rise.

Baltic companies also pay less attention to exchange rate risk management compared to Western European companies. Companies registered in the Baltic states present their financial statements in euros and make the majority of payments in local currency, but companies also use currencies such as the U.S. dollar, the Swedish krona and the Norwegian krone in their activity.

Although there are sharp changes in currency markets, according to SEB's analysis, only 14% of listed companies in the Baltics reduce the risk of currency fluctuations with the help of derivative instruments, while 92% of companies analyzed in Germany, 93%  in the UK and 87% in Sweden regularly manage this risk.

As in Western European countries, Baltic companies mostly use currency forward transactions and, to a lesser extent, option transactions to hedge currency risk. In addition to these popular instruments, large European companies use modern insurance strategies based on option transactions. At the same time, these strategies are not widely used by Baltic companies.

More than half of the Baltic companies also have representations in non-euro area countries, but according to SEB's analysis, they do not mention currency risk management measures or consider them insignificant, so the bank believes that Lithuanian, Latvian and Estonian companies still have many untapped opportunities for more active and efficient exchange rate risk management.

However, the bank estimates that some companies, working with export and import partners abroad, are likely to avoid foreign currency risk because contracts are signed in euros or it is agreed to shift exchange rate effects to end users by changing the price lists of goods or services.

Baltic and Western European companies are least exposed to the risk of commodity prices -- agricultural, energy products, base and precious metals -- although commodity prices tend to fluctuate most frequently.

This year, the price of Brent oil, which has cost 65 U.S. dollars a barrel on the market, has fallen by almost 60 percent in a few months, and later rose by more than 70% from the lowest price point, Priit Tamme, SEB's head of corporate banking, said in a press release.

Thus, by assessing only those companies for which this risk is relevant, it can be stated in Tamme's view that every fourth Baltic company insures itself against the risk of fluctuations in commodity prices. By comparison, respectively 94 percent, 81 percent and 69 percent of companies in Germany, the United Kingdom and Sweden insure themselves.

However, Lithuanian companies are the most active in managing financial risks in the Baltics in all three categories.