Analytics, Banks, EU – Baltic States, Financial Services

"The recession in the Baltics is still very severe, very difficult, and a lot of people are really having a tough time," Clausen said in an interview yesterday at the Eurofi Financial Forum in Gothenburg, Sweden. "I certainly don't see a further deterioration, but an improvement will take a long time." Nordic banks, including Swedbank AB, are facing soaring loan losses in the former Soviet states, which are steeped in the deepest recessions in the European Union. Nordea's net loan losses jumped to 425 million euros in the second quarter, from 36 million euros a year earlier, because of the economic decline in the Nordic region and in the Baltics. Nordea's loan losses have likely peaked, Clausen said, cites Bloomberg/LETA.

"On loan losses in 2010, a lot of factors point to the fact that we have seen the worst in the sense that we will not leave this magnitude," he said. "Maybe they will stay at this level or become lower or maybe slightly higher, but they will not change significantly in a negative direction from here." Sweden's Financial Supervisory Authority sees loan losses at Nordea reaching 18 billion kronor (1.764 billion euros) this year before peaking at 32.7 billion kronor in 2010 in its base scenario, according to a June 10 report. Swedish banks should be prepared for "negative surprises" in the three Baltic countries, where they are the biggest lenders, even as there are signs of stabilization in the region, the regulator said on Sept. 29. Latvia's economic slump forced it to seek an international bailout, while all three Baltic States have passed austerity measures to maintain their currency pegs to the euro and comply with European Union budget rules. That's exacerbated their recessions and made it harder for households and businesses in the region to service their debt. Given signs of a global economic recovery, Nordea may start to invest again in its operations in the Nordic region and Poland to boost income growth and improve efficiency, after halting investments amid the financial crisis, Clausen said.

"We wanted to take caution, be aware of risk and slow down the speed a little bit in our expansion," he said. "But we are in general considering how and when to leave this middle of the road approach." While the bank will continue to monitor the global economic development before making a decision on when to start adding resources in Poland, Sweden, Norway, Denmark and Finland, it is "getting closer" to starting investing again, Clausen said. It "won't be two or five years, it will be before that," he said.