Estonia: Banks Lost USD 23 million in Q1

The Estonian banking sector lost, who is controlled 90% by the largest Scandinavian banks, lost an amount of roughly USD 23 million in the first quarter of 2010, according to the Estonian Central Bank. Moody’s says risk remains in the Baltic area and the World Bank warns against a slow recovery in Eastern Europa.

“There is a risk that the Baltic economies will remain weak for a prolonged period of time, with their banking systems remaining under pressure.”

Moody’s Investor Service

The Estonian banking sector ended the first quarter with a loss of 272 million kroons, about 23 million USD, according to the Estonian Central Bank. The largest Scandinavian banks, Swedbank, SEB, Nordea and Danske Bank control more than 90 percent of the Estonian banking market.

However, at the same time the losses was the lowest in more than a year as financing costs fell and bad-loan growth stabilized, reports.

The last time that the banking industry made a profit was in the fourth quarter of 2008. In the fourth quarter 2008 the banks lost a total of 4.7 billion kroons.

Swedbank, SEB, Nordea and Danske Bank control more than 90 percent of the Estonian banking market.

New provisions for bad loans totaled 1.3 billion kroons, about half of the average volume in the previous two quarters, the central bank says.

The volume of loans overdue for more than 60 days rose to 6.7 percent of all credits issued in March from 6.6 percent the previous month due to a 1.1 percent decline in overall credit volumes.

Loan demand remained “moderate” in March, mainly in property-related businesses.

Outlook Still Negative

Moody’s Investors Service says it will keep its negative outlook for banks in Estonia, Latvia and Lithuania at least this year as the recovery of the Baltic economies remains weak,  Bloomberg reports.

Estonia is likely to be the first to see its banking system outlook changed to stable, followed by Lithuania and then Latvia due to “increasingly differentiated” economic developments among the three Baltic countries, the credit evaluator said in a report on emerging European Banks today.

“The economic outlook of the Baltic countries is still not strong enough to indicate a reversal of outlook to their banking systems,” Moody’s says.

“There is a risk that the Baltic economies will remain weak for a prolonged period of time, with their banking systems remaining under pressure.”

The former Soviet Baltic republics had the deepest recession in the European Union in the past two years after debt-fueled property bubbles collapsed and the global financial crisis hit export demand.

The level of problem loans for banks, led by Stockholm-based Swedbank AB, SEB AB and Nordea AB, will continue to grow in the coming quarters, according to Moody’s.

Economic growth is forecast to be “muted” in 2010 in Estonia and Lithuania where recession has “probably” ended, while Latvia is forecast to remain in recession at least until the middle of 2010, Moody’s says.

“We expect loan losses to peak only later in the year, as asset quality indicators should start to stabilize with a certain time lag after these countries reach the bottom of their respective economic downturn.”

Slow Recovery Ahead

Eastern Europe and Central Asia (ECA) region will face a slow recovery from the global economic crisis in the year ahead and countries facing tight fiscal pressures should take care to target social spending on the most needy and vulnerable, the World Bank said April 23 at a press briefing.

“Countries in this region were hit the hardest by the global economic crisis and are likely to be the slowest to resume economic growth,” Philippe Le Houérou, World Bank Vice President for the Europe and Central Asia Region said.

“Growth in the Region, which had peaked at about 7 percent in 2007, fell to a negative 6 percent in 2009. 2010 is going to be a tough year for the Region with growth projected at around 3 percent. The prospects for 2011-2013 are only slightly better. Rising joblessness is pushing households into poverty and making things even harder for those already poor.”

Emerging Europe and Central Asia is a diverse region. Differentiation among countries resulted in varying degrees of impact that the crisis has had on individual countries and will also define their prospects for recovery. 20 out of 30 countries in the Region experienced a decline in GDP in 2009, with GDP growth ranging from a negative 18 percent in Latvia to a positive 9.3 percent in Azerbaijan.

“Overall, countries in the Emerging Europe and Central Asia Region will recover from the crisis more slowly than in other regions. According to the World Bank , current growth projections for 2011-2013 show the region growing between 3 and 4 percent, as compared to approximately 5 percent in the Middle East and about 8 percent in developing Asia. 2010 is expected to be particularly difficult for Europe and Central Asia, with GDP growth forecasts about half of the forecast for the rest of the developing world,” the World Bank  reported.

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