Capital markets day CMD 2008 - Erkki Raasuke

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Capital markets day CMD 2008 - Erkki Raasuke

  1. 1. 1 Baltic Banking Mr Erkki Raasuke Head of Baltic Banking Capital Markets Day Kiev, 5 March 2008 © Swedbank 2 Agenda • Overview of the market • Present situation • Baltic Banking: looking at 2008
  2. 2. 2 Overview of the market © Swedbank 4 Baltics macro development • Long-term economic growth is supported by: – Attractive initial conditions – Prudent governance and strong institutions – Significant investment in capital stock and human capital – Open and flexible economies • Short-term unsustainable growth caused by: – EU accession and convergence – Excessive inflow of debt capital Real GDP growth 4% 6% 8% 10% 12% 14% 2005 2006 2007F 2008F Est Lat Lit CPI growth 2% 4% 6% 8% 10% 12% 2005 2006 2007F 2008F Est Lat
  3. 3. 3 © Swedbank 5 Baltics macro development – Signs of slowdown • All three countries are following the expected path of an economic cycle: • Estonia is clearly in the slowdown phase (expected to reach low point during H108 with slow recovery during H208) • Latvia passed the turning point in Q3 (expected to reach bottom H2 08 with slow recovery during 2009) • Lithuania reached its peak in Q3 (the bottom of current cycle expected in 2009. The economic cycle in Lithuania will probably be flatter than in Estonia and Latvia) GDP real growth 4% 6% 9% 11% 13% 15% Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Estonia Latvia Lithuania Consumer confidence -20 -15 -10 -5 0 5 10 15 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 Estonia Latvia Lithuania Present situation
  4. 4. 4 © Swedbank 7 Financial performance Net profit (EURm) 463 175 205 323 2004 2005 2006 2007 Cost-income ratio 44% 49%49% 40% 2004 2005 2006 2007 Return on equity 27% 22%23% 30% 2004 2005 2006 2007 Number of employees 6,576 7,058 9,203 8,216 2004 2005 2006 2007 Lending (EURm) 14,158 8,899 5,697 18,877 2004 2005 2006 2007 >20%ROE on actual equity <0.35%Net loan losses <42%Cost-income >20%EBT growth Medium-term goals © Swedbank 8 Group lending by sectors – Baltic Banking Real estate development • 38% of real estate management loan book is related to residential real estate (Estonia 29%, Latvia 45%, Lithuania 38%) – Est/Lit 1/1 development – Lat 2/3 development • Early development projects (land) form 12% of real estate management portfolio Real-estate management splitPortfolio, December 2007, EURm 15% 8% 38% 12% 24% 3% Office Production and warehouse Residential Land plots Retail Other 546 1,111 1,692 1,736 3,012 8,282 2,786 0 2,000 4,000 6,000 8,000 Other Construction Transport Industry Retail & wholesale Real-estate mgmt Individuals xx% - share of portfolio and portfolio growth 42% 3% 6% 8% 9% 15% 14%
  5. 5. 5 © Swedbank 9 Asset quality and provisioning cost -0.06%-0.17%Group level provision adjustment 0.35%0.28%Baltic Banking 0.23%0.09%Lithuania 0.56%0.61%Latvia 0.39%0.57%Estonia 2007Q4 07 *Loan loss ratio, net = (changes in provisions + net write-offs) / credit portfolio at the beginning of the period Loan loss ratio, net* Share of non-performing loans* 0.68%0.53%Baltic Banking 0.76%0.50%Private 0.63%0.56%Corporate Dec 07Jun 07 *Share of non-performing loans = the volume of 60 days overdues /12m old portfolio • Upon the Hansabank acquisition in 2005, Swedbank made a general provision of about SEK280m. In Q4 2007, SEK70m of this was released • The provision was partly made because Swedbank at the time did not have full insight into Hansabank's risk and credit systems and processes and thus made an extra provision for potential bad loans • Since then the systems and processes have improved and have also been aligned with Swedbank's Baltic Banking: looking at 2008
  6. 6. 6 © Swedbank 11 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 12 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
  7. 7. 7 © Swedbank 13 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 14 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
  8. 8. 8 © Swedbank 15 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 16 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
  9. 9. 9 © Swedbank 17 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 18 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
  10. 10. 10 © Swedbank 19 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 20 Additional material
  11. 11. 11 © Swedbank 21 Macro figures* -1.1-1.2-1.1-1.6-2.4EU27 0.0-0.5-0.5-0.6-0.5Lithuania 1.210.7-0.3-0.4Latvia 0.0-1.823.82.3Estonia General government balance (ESA95), % of GDP -0.9-0.9-0.9-0.8-0.7EU27 -10.0 (Q4 07)-11.3-12.2-12.8-9.6-5.9Lithuania -14.7 (Q4 07)-11.5-15.5-22.3-21.1-11.2Latvia -12.2 (Q407)-6.5-8-12-13.4-8.1Estonia Current and capital account balance, % of GDP 6.8 (Dec 07)6.66.87.17.98.7EU27 3.9 (Dec 07)4.74.64.35.68.3Lithuania 5.4 (Dec 07)6.56.55.96.99Latvia 5.3 (Dec 07)65.555.97.9Estonia Harmonized unemployment level, % 9.9 (Jan 08)4.885.7**3.72.7Lithuania 15.8 (Jan 08)6.512.510.1**6.56.7Latvia 11 (Jan 08)3.86.56.6**4.44.1Estonia Consumer price growth, % 5.6 (Q3 07)2.42.42.931.8EU27 7.9 (Q4 07)6.57.58.7**7.77.9Lithuania 9.6 (Q4 07)6.5610.511.910.6Latvia 4.5 (Q4 07)65711.210.2Estonia Economic growth, % Latest data2009f2008f2007f20062005 *Estonian, Latvian and Lithuanian forecast by HBM; EU27 forecast by EC (Autumn 2007 forecast) ** for actual data in 2007 © Swedbank 22 Main export sectors - Estonia 30% 9%7%11% 4% 8% 12% 5% 4%6% 17% 18% 6% 9% 11% 40%45% 31% 12%10%9% 0% 20% 40% 60% 80% 100% 2003 2005 2007 Food, beverages, tobacco etc Mineral products Chemicals Plastic, rubber, wood etc Textiles, footwear Machinery and equipment Metals + other Main export sectors - Latvia 12% 15% 30% 28% 25% 17% 9% 4% 6% 7% 9% 7% 9% 23% 0% 20% 40% 60% 80% 100% 2003 2005 2007 Food, beverages, tobacco etc Mineral products Chemicals Plastic, rubber, wood etc Textiles, footwear Machinery and equipment Metals + other Main export sectors - Lithuania 17% 20% 27% 27% 22% 35% 13%11% 14% 7% 7% 9% 9% 10% 12% 15% 10% 8% 11%11% 6% 0% 20% 40% 60% 80% 100% 2003 2005 2007 Food, beverages, tobacco etc Mineral products Chemicals Plastic, rubber, wood etc Textiles, footwear Machinery and equipment Metals + other N/A Export sectors
  12. 12. 12 © Swedbank 23 EE 53%47% 44% 56% 37% 63% Private loans Corporate loans LV LT 11% 6% 38% 32% 13% 7% 11% 34% 41% 7% 9% 8% 40% 31% 12% 23% 7% 29% 22% 14% 5% 12% 15% 45% 11% 15% 2% 11% 5% 38% 38% 5% 3% Office Production & warehouse Residential Retail Land plots OtherCommercial real estate Transport Capital goods Retail Other December 2007 Commercial real estate

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