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Capital markets day CMD 2008 - Erkki Raasuke

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Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to ...

Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.

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Capital markets day CMD 2008 - Erkki Raasuke Capital markets day CMD 2008 - Erkki Raasuke Document Transcript

  • Baltic Banking Mr Erkki Raasuke Head of Baltic Banking Capital Markets Day Kiev, 5 March 2008 Agenda • Overview of the market • Present situation • Baltic Banking: looking at 2008 © Swedbank 2 1
  • Overview of the market Baltics macro development Real GDP growth • Long-term economic growth is 14% supported by: 12% 10% – Attractive initial conditions 8% – Prudent governance and strong 6% institutions 4% 2005 2006 2007F 2008F – Significant investment in capital Est Lat Lit stock and human capital – Open and flexible economies CPI growth • Short-term unsustainable growth 12% caused by: 10% 8% – EU accession and convergence 6% – Excessive inflow of debt capital 4% 2% 2005 2006 2007F 2008F Est Lat © Swedbank 4 2
  • Baltics macro development – Signs of slowdown GDP real growth • All three countries are following 15% the expected path of an 13% economic cycle: 11% • Estonia is clearly in the slowdown 9% phase (expected to reach low point 6% during H108 with slow recovery 4% during H208) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 • Latvia passed the turning point in Estonia Latvia Lithuania Q3 (expected to reach bottom H2 08 with slow recovery during 2009) Consumer confidence 15 • Lithuania reached its peak in Q3 10 (the bottom of current cycle 5 expected in 2009. The economic 0 cycle in Lithuania will probably be -5 flatter than in Estonia and Latvia) -10 01-05 04-05 07-05 10-05 01-06 04-06 07-06 10-06 01-07 04-07 07-07 10-07 01-08 -15 -20 Estonia Latvia Lithuania © Swedbank 5 Present situation 3
  • Financial performance Net profit (EURm) Cost-income ratio 49% 49% 463 44% 323 40% 175 205 2004 2005 2006 2007 2004 2005 2006 2007 Return on equity Lending (EURm) 30% 27% 18,877 14,158 23% 22% 8,899 5,697 2004 2005 2006 2007 2004 2005 2006 2007 Number of employees Medium-term goals EBT growth >20% 9,203 ROE on actual equity >20% 8,216 <42% 7,058 Cost-income 6,576 © Swedbank Net loan losses <0.35% 7 2004 2005 2006 2007 Group lending by sectors – Baltic Banking Portfolio, December 2007, EURm Real-estate management split 3% 15% Office Individuals 8,282 42% 24% Production and Real-estate warehouse 3,012 15% Residential mgmt 8% Land plots Retail & wholesale 1,736 9% Retail 12% Other Industry 1,692 8% 38% Transport 1,111 6% Real estate development Construction 546 3% • 38% of real estate management loan book is related to residential real estate (Estonia Other 2,786 14% 29%, Latvia 45%, Lithuania 38%) – Est/Lit 1/1 development 0 2,000 4,000 6,000 8,000 – Lat 2/3 development xx% - share of portfolio and portfolio growth • Early development projects (land) form 12% © Swedbank of real estate management portfolio 8 4
  • Asset quality and provisioning cost • Upon the Hansabank acquisition in Loan loss ratio, net* 2005, Swedbank made a general provision of about SEK280m. In Q4 Q4 07 2007 2007, SEK70m of this was released Estonia 0.57% 0.39% Latvia 0.61% 0.56% • The provision was partly made Lithuania 0.09% 0.23% because Swedbank at the time did Group level provision adjustment -0.17% -0.06% not have full insight into Hansabank's risk and credit Baltic Banking 0.28% 0.35% systems and processes and thus *Loan loss ratio, net = (changes in provisions + net write-offs) / credit portfolio at made an extra provision for the beginning of the period potential bad loans Share of non-performing loans* • Since then the systems and Jun 07 Dec 07 processes have improved and have Corporate 0.56% 0.63% also been aligned with Swedbank's Private 0.50% 0.76% Baltic Banking 0.53% 0.68% *Share of non-performing loans = the volume of 60 days overdues /12m old portfolio © Swedbank 9 Baltic Banking: looking at 2008 5
  • Baltic Banking Goal is to be a clear leader in each Baltic market – Biggest growth in volumes (in absolute terms) – Highest profit (in absolute terms) – Highest level of customer satisfaction © Swedbank 11 Baltic Banking priorities 2008 Build efficient organization and reduce complexity • Build new organization model • Increase operational efficiency • Improve employee productivity • Build capabilities to work with data Grow core businesses • Corporate banking - manage through the cycle • Retail lending - improve credit selection and risk-based pricing • Daily banking - strengthen our client offerings • Investment management - build cross-border operating model © Swedbank 12 6
  • Build new organization model in Baltic Banking • Goal is to build a regional banking organization which leverages on cross-border capabilities – Building future cross-border operating model for Swedbank Group, starting where value is most easily gained - Baltics – Best practices and innovation rolled out quicker – Leverage from experience of same business areas of three countries – Clear decision making and execution authority – Talented people can maximize their potential • Priorities in 2008 – Define new organizational model in Baltic Banking by May 2008 – Implementation period from June to December – New organizational model is expected to be fully functional in 2009 © Swedbank 13 Increase operational efficiency • Grow business while improving efficiency • Priorities in 2008 – First pilots in mortgage, debit cards run in 2007; corporate lending, consumer finance and current account/payments to be rolled out in 2008 – Develop operational performance measurement system – Clear internal targets for savings in monetary terms, quality, lead time, FTE reduction, customer satisfaction have been established © Swedbank 14 7
  • Grow core businesses – Corporate banking • Priorities in 2008 – Manage corporate business through the cycle – strengthen the monitoring and restructuring teams – maintain and enhance relationships with long-term clients – Establish junior lending/ distressed debt solutions – restructuring of distressed debt and launching mezzanine type of products – Establish knowledge centres for specialized finance – e.g. acquisition & project finance, shipping finance – Attain cross-border credit solution and full-service cash management offering for pan-Baltic clients – unified service model – implement efficient remote account opening and after-service – launch regional e-channels offering © Swedbank 15 Grow core businesses – Retail lending • Priorities in 2008 – Implement risk capital logic in business strategy – Develop risk selection and pricing skills – Implement portfolio management – Implement client value management approach – Pilot ongoing in consumer finance, after that rolled out in other areas – Improve process efficiency © Swedbank 16 8
  • Grow core businesses – Daily banking • Priorities in 2008 – Develop daily banking business concept and strengthen our client offerings – Develop Customer Relationship Management concept – Increase customer activity – Core focus product - deposits – maintain or increase current market share © Swedbank 17 Grow core businesses – Investment management • Priorities in 2008 – Build cross-border business model in life insurance and asset management – Build standardized advisory process in retail – Increased focus on investment management in private banking segment – Particularly in Latvia and Lithuania © Swedbank 18 9
  • Summary • Short-term challenges – Credit quality – Operational efficiency • Building capabilities going forward – Cross-border operating model – Business processes for more mature markets • Committed to fulfilling medium-term goals © Swedbank 19 Additional material © Swedbank 20 10
  • Macro figures* 2005 2006 2007f 2008f 2009f Latest data Economic growth, % Estonia 10.2 11.2 7 5 6 4.5 (Q4 07) Latvia 10.6 11.9 10.5 6 6.5 9.6 (Q4 07) Lithuania 7.9 7.7 8.7** 7.5 6.5 7.9 (Q4 07) EU27 1.8 3 2.9 2.4 2.4 5.6 (Q3 07) Consumer price growth, % Estonia 4.1 4.4 6.6** 6.5 3.8 11 (Jan 08) Latvia 6.7 6.5 10.1** 12.5 6.5 15.8 (Jan 08) Lithuania 2.7 3.7 5.7** 8 4.8 9.9 (Jan 08) Harmonized unemployment level, % Estonia 7.9 5.9 5 5.5 6 5.3 (Dec 07) Latvia 9 6.9 5.9 6.5 6.5 5.4 (Dec 07) Lithuania 8.3 5.6 4.3 4.6 4.7 3.9 (Dec 07) EU27 8.7 7.9 7.1 6.8 6.6 6.8 (Dec 07) Current and capital account balance, % of GDP Estonia -8.1 -13.4 -12 -8 -6.5 -12.2 (Q407) Latvia -11.2 -21.1 -22.3 -15.5 -11.5 -14.7 (Q4 07) Lithuania -5.9 -9.6 -12.8 -12.2 -11.3 -10.0 (Q4 07) EU27 -0.7 -0.8 -0.9 -0.9 -0.9 General government balance (ESA95), % of GDP Estonia 2.3 3.8 2 -1.8 0.0 Latvia -0.4 -0.3 0.7 1 1.2 Lithuania -0.5 -0.6 -0.5 -0.5 0.0 ©EU27 Swedbank -2.4 -1.6 -1.1 -1.2 -1.1 21 *Estonian, Latvian and Lithuanian forecast by HBM; EU27 forecast by EC (Autumn 2007 forecast) ** for actual data in 2007 Export sectors Main export sectors - Estonia Main export sectors - Latvia 100% 9% 10% 12% 100% 25% 17% 80% 31% 80% 45% 40% 9% 23% 60% 11% 60% 9% 7% 6% N/A 40% 30% 9% 40% 30% 28% 17% 18% 20% 5% 6% 7% 6% 4% 12% 20% 9% 4% 8% 4% 11% 9% 12% 15% 7% 0% 0% 2003 2005 2007 2003 2005 2007 Food, beverages, tobacco etc Mineral products Food, beverages, tobacco etc Mineral products Chemicals Plastic, rubber, wood etc Chemicals Plastic, rubber, wood etc Textiles, footwear Machinery and equipment Textiles, footwear Machinery and equipment Metals + other Metals + other Main export sectors - Lithuania 100% 11% 11% 6% 80% 27% 22% 35% 60% 10% 15% 10% 8% 9% 7% 12% 40% 7% 9% 27% 14% 20% 20% 17% 11% 13% 0% 2003 2005 2007 Food, beverages, tobacco etc Mineral products Chemicals Plastic, rubber, wood etc Textiles, footwear Machinery and equipment © Metals + other Swedbank 22 11
  • December 2007 Commercial real estate 5% 14% 23% 32% EE 47% 53% 13% 11% 7% 6% 22% 38% 2% 29% 15% 12% 41% 11% LV 44% 56% 7% 15% 7% 11% 34% 3% 45% 5% 11% Office 5% 31% Production & warehouse 12% Residential 37% 63% 9% LT 8% 38% Retail 40% 38% Land plots Private loans Commercial real estate Transport Other © Swedbank Corporate loans Capital goods Retail 23 Other 12