Estonian banks say lower interest rates will reduce future profits
Banks operating in Estonia have once again made big profits over the past nine months. Banks expect that lower interest rates will mean smaller profits in the future, but experts are not convinced.
Swedbank's Estonian branch made a net profit of €279 million on a turnover of almost €0.5 billion in the first nine months of 2024. Swedbank's profits were €43 million lower than at the same point last year. At the beginning of 2024, the bank paid out an extraordinary dividend, which increased the tax income of Swedbank's Swedish parent company by almost €49 million.
According to Anna Kõuts, Swedbank's CFO, the lower profits are not related to that.
"The decrease in net profit was primarily due to a decrease in net interest income. The change in net interest income was influenced by lower loan margins. The share of term deposits was higher and interest rates on deposits were also higher than in the previous period," Kõuts explained.
According to Kõuts, the peak in bank profits has now passed. LHV, which posted a net profit of €114 million for the first nine months of the year, some €6 million more than a year ago, expressed a similar opinion.
"Profits are starting to fall because obviously deposits or dormant money is no longer being earned in the way it used to be. And it is just now that all the banks have different levels of ability to maintain their own efficiency, that [it affects] how well they are able to then turn around these higher priced term deposits to lower levels," said Kadri Kiisel, head of LHV bank.
"For the Baltic banks, we are expecting an average profit decline of around 10 percent. Next year we expect around the same levels of profit, depending on the bank. And from there on, actually, profits should already start to go back up thanks to the overall credit growth. It's also very important to note here that all of this will depend on how much interest rates actually come down for us and what economic growth does," said Rain Leesi, head of investments at Avaron.
Leesi stressed that the worst-case scenario for banks would be for interest rates to fall really sharply back to zero. This would hint at a recession on the horizon and could even mean losses for banks. However, the general view is that it is more likely interest rates will remain at around 2 percent and at some point growth will pick up.
SEB's profits for the past nine months will be made public on Thursday, October 24.
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Editor: Merili Nael, Michael Cole
Source: "Aktuaalne kaamera"
