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July 22, 2010, 1:27 p.m. EDT

Lower Loan-Loss Provisions Lift Swedbank Results

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By Erik Durhan

STOCKHOLM—Swedbank /zigman2/quotes/203208387/delayed SE:SWED.A -0.31% AB swung to a second-quarter net profit on lower loan-loss provisions and said it sees macroeconomic strength in home markets.

Net profit for the three months to June 30 was 1.57 billion Swedish kronor ($212.1 million), compared with a 2.01 billion kronor net loss a year earlier and a 536 million kronor net profit in the first quarter.

The latest figure, which beat analysts' estimates for net profit of 610 million kronor, was helped by improvements in its key Baltic markets and sharply lower overall credit impairments.

"In the Baltic countries, credit quality has improved more rapidly than anticipated, which meant that credit losses have decreased strongly. In Russia and Ukraine, minor recoveries were made for the second consecutive quarter. Credit quality remains strong in Sweden," Chief Executive Michael Wolf said.

Net interest income, the bank's main source of revenue, fell 28% to 3.80 billion kronor from 5.24 billion kronor, but credit impairments declined to 963 billion kronor from 6.67 billion kronor. Analysts had forecast net interest income of 4.05 billion kronor.

Swedbank said loan-loss provisions stood at 846 million kronor, down from 6.14 billion kronor a year earlier and 1.78 billion kronor in the first quarter—and sharply lower than analysts' estimates of 2.26 billion kronor.

"In line with our expectations, net interest income fell during the quarter; however, a number of factors are gradually starting to impact net interest income positively. Market interest rates have risen from very low levels, pushing up interest-rate margins. Our interaction with the corporate market resulted in a higher number of credit applications whilst repricing continues as fixed-rate contracts mature," said Mr. Wolf.

The bank added that it will see a continuing fall in credit losses going forward. "But this will heavily depend on property-price developments in the Baltics," the bank said.

The Stockholm-based bank operates heavily in the Baltics, and sees Estonia, Latvia and Lithuania as home markets. The economies in those countries have recovered over the past year, though many analysts deem the recovery fragile.

But Swedbank said Thursday the Baltic economies continue to stabilize. "Estonia's [European Union economic and monetary union] accession in 2011 will strengthen confidence in the country's economy and increase interest in direct investment. In the second quarter of 2010, Swedbank posted a profit in Estonia for the first time since 2008," the bank said.

Swedbank's Baltic business reported a loss of 1.5 billion kronor in the first half, compared with a loss of 5.01 billion kronor a year earlier. The improvement was mainly due to lower credit impairments. In Russia and Ukraine, Swedbank saw a small net recovery, and booked a first-half profit of 139 million kronor, from a 4.49 billion kronor loss.

Nordic peers Nordea AB and SEB /zigman2/quotes/201173722/delayed SE:SEB.A -1.73% both reported that overall loan-loss provisions had been cut in the second quarter to a greater extent than analyst had projected, and that they had seen signs of the recovery strengthening in the Nordic regions.

Swedbank declined to comment specifically on the EU-wide stress tests until Friday, when results are due to be released. "In general, it's not a severe stress test. And for us, in the most severe scenario we still come out with a profitable number each year," the bank stated.

/zigman2/quotes/203208387/delayed
SE : Sweden: Stockholm
kr 161.40
-0.50 -0.31%
Volume: 4.04M
Feb. 21, 2020 5:29p
P/E Ratio
9.19
Dividend Yield
5.45%
Market Cap
kr180.50 billion
Rev. per Employee
kr3.73M
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/zigman2/quotes/201173722/delayed
SE : Sweden: Stockholm
kr 102.25
-1.80 -1.73%
Volume: 5.56M
Feb. 21, 2020 5:29p
P/E Ratio
11.02
Dividend Yield
6.11%
Market Cap
kr220.96 billion
Rev. per Employee
N/A
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