Pandemic economic effects on banking sector likely to bite in fall

Estonia's banks are getting to grips with the emergency situation as it reaches its conclusion on Sunday night. While some banks made a loss in April, oterhs made a profit, though expect the economic fallout from the pandemic to really bite in the second half of the year, at least as far as the banking sector goes.

LHV makes April loss

Estonian bank LHV lost €1.6 million in April, the bank says. LHV Group's net loss was caused by loan write-downs (reduction of how much a borrower owes-ed.), the bank says, and its financial results were largely affected by the deterioration of the economic environment related to the emergency situation declared on March 12. The bank also noted that the write-downs anticipated future issues, and that payment holidays had not been the norm, though they had been issued.

"The actual loan portfolio today is still strong, and the level of indebtedness is very low," said Madis Toomsalu, head of LHV Group, on ETV news show "Aktuaalne kaamera" Tuesday.

It is a bit misrepresentative to say here that we have been giving out payment holidays, however; problems may appear later, and these loan write-downs should take this into account," he went on.

Toomsalu added that April's results were an indicator of how bank customers will behave in the near future.

"The current best indicator is still payment holidays, and LHV has granted these to up to twenty percent of customers, as is the case in the banking sector in general," he said.

The first wave of payment holidays, where clients defer monthly repayments to later, are already with the banks since requests started coming in at the beginning of the emergency situation in mid-March. The number of borrowers and lessees also decreased during the same period, the ETV report said.

Heiki Raadik, Head of Credit Products at another Estonian bank, Luminor, said that there had been some small signs of recovery, however, with the number of loan applications at pre-crisis levels in the past two to three weeks.

"Leasing fell by about 40 percent, private applications fell by more, and corporate applications by less," he said.

Leasing agreements are often used by Estonian banking clients in order to purchase more upscale vehicles than they might otherwise be able to.

"There have also been some signs of recovery in recent weeks. But this [leasing] market will certainly recover more slowly than the mortgage market," said Raadik.

Coop makes profit of over quarter of a million euros

Estonian bank Coop Pank earned a net profit of €289,000 in April. According to head of bank Margus Rink, the deterioration of the financial position of companies and individuals will only start to affect the sector in the second half of the year, starting from late summer to autumn.

"We are seeing a gradual decline in sales, 10 to 20 percent fewer new customers and a 20 percent lower loan volume," Rink said.

"[The timing of the downturn hitting the banks] depends on what the state does with the state's labor wages measures; at the moment they have still helped clients a lot," Rink noted, referring to a government program initiated in response to the pandemic whereby companies in trouble directly as a result of the virus can claim up to 70 percent of employee wages, to a maximum of €1,000 and, at present, over a two-month period.

The two largest high street banks in Estonia, the scandinavian-owned Swedbank and SEB, announced that as they publish quarterly financial results, they cannot make estimates for April separately.

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Editor: Andrew Whyte

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