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Thursday, September 27, 2007

Hansapank Announces Lithuania Portfolio Diversification

AS Hansapank, effectively the biggest Baltic lender, has announced that it is going to diversify its credit portfolio in Lithuania.

Hansapank, which is owned by Stockholm-based Swedbank AB, will ``at some point'' have to set credit growth restrictions in Lithuania, the biggest of the three Baltic countries, Chief Executive Officer Erkki Raasuke said in an interview in Tallinn yesterday (reported by Bloomberg here). According to Raasuke the only reason Hansapank haf not previously done this was because Lithuania's problems have been longer in coming than those in Latvia and Estonia.

"We don't have any signs or confidence at this point that in Lithuania we would avoid the need for credit restrictions, but we would do it differently there" Raasuke said. "Instead of setting internal limits for absolute credit growth, we should rather set targets on diversifying the credit portfolio. These are the steps we didn't take in Estonia and Latvia."

Hansapank predicted in April that Baltic loan growth will slow to around 35 percent this year from 59 percent last year, helped by lending restrictions it set to lower credit growth to more sustainable levels.

Raasuke did however admit that Hansapank could have acted earlier to cool loan growth in the light of its own forecasts in the second half of 2006.

``We were probably talking more and doing less, there was kind of a frozen state,'' Raasuke said. ``But we are only a part of the market and it seemed that the critical mass was achieved only in February-March so that all market players could start moving in the same direction.''

In April, Hansapank's Estonian unit raised the minimum monthly income requirement for granting a mortgage to 7,000 krooni ($607) from 5,000 krooni, compared with the average gross monthly salary of 11,549 krooni in the second quarter.

Raasuke also said that it was obvious from Hansapank's business that lending behavior had changed within the last four to five months in Latvia and Estonia, and cited a "clear decline" in new loans, compared with peak monthly levels and the average levels of the last three to four years.

Raasuke also said that the recent decline in consumer confidence in the Baltics was not affecting the peoples confidence in the banks, since the Baltic market is small compared with the size of the banking groups involved. (Estonian consumer confidence fell during August to its lowest level in almost two years because of worsening expectations about household and state finances).

Estonian investment gold seller AS Tavid is reported to have tripled its weekly sales to about 60 kilograms in recent months, according to the newspaper the Postimees yesterday, and the paper also cites reports that people are increasingly converting their bank deposits from krooni into foreign currency.

Raasuke however was confident that there was no `"big" risk of a Baltic property sector collapse as the problems of oversupply are only affecting residential property business, with demand expected to remain strong for commercial property and especially civil engineering.

Raasuke is undoubtedly right to point out that the Baltic States for only a small part of their total business, but it is also true to say that the US sub-prime liabilities of many European banks were also only a small part of their total portfolio, and look what a mess that has caused. So I think we need to be rather careful before reaching any strong conclusions here.

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