Analytics, Financial Services, Latvia

Maris Avotins.

"Our principal observation in the first half of this year is that the major part of our main business activity continues to develop at a relatively very good pace. The number of customers, the volume of deals and customers' activity have not decreased, people are using bankcards increasingly often, they use more of the bank's services. I believe that bank's profit will not differ significantly from that of 2007," Avotins said.

"Over the next few quarters we will see an increase in the number of customers who fail to make their loan payments on time. This will make banks increase their reserves, which will subsequently have an impact on profits, meaning that this and the next year, reserve costs will be higher," Avotins said.

Avotins believes that the bank's losses caused by defaults on loan repayments could reach 0.6% to 0.7% of its loan portfolio this year. Next year the losses could be bigger – approximately 1.2%. Currently the amount of losses matches the bank's projections, but next year the losses could be higher than previously expected.

"The economic slowdown has been more rapid than we expected six months ago, thus the long-term projections have changed. On the other hand, the stronger we feel the impact of the economic slowdown, the bigger the motivation to start restructuring," Avotins chairman explains.

According to the banker, usually private individuals are more reliable borrowers than enterprises. "We can see that the wages in the country have increased. We do not expect an increase in the number of defaults among the private customers. Regarding enterprises, there will always be some that will hope for a good outcome without doing anything. Now is the time to act. Those who do not focus on optimization of their businesses will be in a difficult situation in six to twelve months. Enterprises have to understand that the business environment has changed."