Most recently, the International Monetary Fund (IMF) believed that in 2009 Latvia’s GDP would fall by only 0.88%. In January of this year, the extent of the fall was predicted at a level of 2%, and in March, experts were already talking about a 5 percent decline. Then these numbers were shocking, as was the expected public debt of 33% of GDP.
Now all these predictions look ridiculous. Economists argue that the recession may amount to 17% of GDP or even more. Latvia’s debt has increased to 160% of gross domestic product, and taking into account new loans that the country hopes to receive, the amount of borrowed capital will be about 180% of GDP. In addition to state debts, Latvia is also burdened by private debts: mortgage, consumer, and also capital employed for business development.
The main creditors at the state level are the IMF, the European Bank for Reconstruction and Development, the European Commission, and individuals and companies have to deal with the notorious Scandinavian banks, mainly Swedish.
Scandinavian lenders are knocked down
If in recent years cheap loans from Swedish banks, among which Swedbank dominates in the Baltics, have provided an economic boom in Estonia, Latvia and Lithuania, now the economic crisis in these countries has led to serious problems for creditors themselves. In particular, Bloomberg cites the words of the representative of Swedbank, Jenny Klevstrem, who claims that in Estonia the value of 24% of real estate objects that the bank financed to buy is lower than the total amount of the loan taken. In Lithuania, this figure is 37%, and in Latvia - 54%.
According to the Estonian branch of Swedbank, at the end of June, loans with a delay of more than 60 days amounted to 5.6% of the bank’s loan portfolio in Estonia. In Latvia, the situation is even more tense. The number of “bad loans” exceeds 10%, which is only 5% less than the dangerous border. As the press secretary of the Latvian branch of Swedbank, Christine Jakubovska, told Delfi news agency, due to the deteriorating macroeconomic situation in Latvia, the second quarter of this year, Swedbank in this country ended up with losses of 169 million lats (more than 200 million euros).
In the first half of the year, the number of Swedbank employees in Latvia was reduced by 8.3%, the salary of employees was cut by 13%. To reduce costs, the bank optimized its branch network by closing six branches.
According to Martin Johanson, head of the Baltic branch of another Swedish bank SEB, this financial institution also has many overdue loan payments, like Swedbank, and it is not known what to expect in the future. SEB is worried about growing unemployment in Estonia, Latvia and Lithuania, as benefits fall and the heating season is approaching, during which the ability to give loans from people will fall sharply. At the moment, the profit of SEB in the second quarter decreased by 41% compared to last year.
The problems of the Scandinavians are not limited to the Baltic. According to the Financial Times, total losses
Swedbank in the second quarter exceeded the forecast and amounted to 1.8 billion Swedish kronor (about 170 million euros). In this regard, in order to optimize costs, it is planned to lay off 3,600 employees within a year and a half, mainly in the Baltic countries. In Sweden itself, according to the local English-language newspaper The Local, the number of employees will be reduced by 500 people (people will mostly be sent to retire).
In order to strengthen their position in the metropolis, the Swedes, according to the Director of the Economic Department of the Bank of Lithuania Raimondas Kuodis, withdraw money from the Baltic branches.
On the pages of the newspaper Lietuvos inios, a high-ranking official assures that from the beginning of the year Scandinavian banks returned about 3-4 billion litas from their Lithuanian branches only, and there are also Latvian and Estonian divisions. Such tactics of Swedish banks, of course, depletes the financial system of the Baltic countries, so the governments of these countries have to hope only that at least some of the local debtors will get on their feet and be able to return the loans.