Swedbank, the Nordic bank most exposed to the crisis-hit Baltics, is leaving Sweden's state guarantee scheme after securing funding for nine months on its own as it recovers from the downturn. The government programme was put in place in October 2008 at the height of the global financial crisis to ensure liquidity as interbank lending seized up just as the Baltic economies started to slipped into a deep recession.
The bank, which has suffered heavy losses due mainly to souring credits in Latvia, Lithuania and Estonia, said on Friday it has not tapped the programme for funding in the past nine months and is leaving it with immediate effect. Swedbank shares were up 1.3 percent at 0914 GMT, outperforming the wider Stockholm blue chip index. "This is more a confirmation their funding situation has improved and that Swedbank expects the situation to remain that way," said Rickard Strand, an analyst at HQ Bank.
The bank's improved funding situation over the past year has led to a sharp recovery in its five-year credit default swap spreads to just over 100 basis points, from a peak of about 325 points at the end of June 2008 when markets feared a potential devaluation of Baltic currencies. Swedbank's spreads were trading about 30 basis points above rivals SEB and Nordea, although Strand said he expected this spread would also continue to contract over time.
Following a deep 9.5 billion crown loss last year Swedbank expects to make a profit this year as credit losses decline and it has highlighted in particular encouraging signs in Estonia which makes up 40 percent of its lending in the region. Estonia's finance ministry said on Friday that it will raise its economic growth forecast to around 1 percent from zero when it unveils its forecasts next week.
Chief Executive Michael Wolf said leaving the guarantee programme showed the bank could fund itself and demonstrated its ongoing efforts to reduce credit and liquidity risk levels, helped by a more normalised market. "To achieve an independent funding was one of the main goals behind Swedbank's rights issue in August 2009," Wolf said. "Leaving the state guarantee programme is one more step in this direction."
The bank tapped the market again last October for 15.1 billion crowns as a buffer against further credit losses. It anticipates a gradual drop in credit losses this year. Since July last year, Swedbank borrowed 200 billion Swedish crowns ($27.4 billion) in long-term funding from the market on its own, with half of that taken out in the first quarter.
"Swedbank will, as soon as there is more clarity around the regulatory framework regarding requirements on banks' liquidity, and should market conditions allow it, strive to buy back the longest dated government guaranteed debt," the bank said. It will have outstanding loans previously issued under the programme until July 2014.