Danske Bank expects loan losses at its troubled Irish and Baltic units to shrink this year and plans for slow organic growth in Estonia and Ireland once the economies recover, a top executive said.
Thomas Borgen, head of Danske's operations outside Denmark, said the near-term focus in Ireland was to finish a savings programme at its National Irish Bank (NIB), and said Danske has no plans to join in merger activity there in the next few years.
"Our ambition is to grow when the time is right ... That is when we've restructured our current operation and when the economy is ready," he said in an interview. "We think that will be somewhere in 2011 or 2012."
Danske is closing 25 of its 58 branches of NIB, a small player in Ireland.
In 2009, 5 billion crowns out of Danske's total 26 billion crowns worth of loan impairment charges stemmed from NIB, some 80 per cent of which related to a diving property market.
Mr Borgen predicted the Irish property market would remain "challenging" in 2010. "In Dublin we have probably seen the bottom. If you go outside Dublin it could still fall," he said.
Mr Borgen expressed cautious optimism the National Asset Management Agency (Nama) would benefit the banking sector and the wider economy. "It is probably the right thing that the government is doing ... Let's see now in practice how it will work. Sitting on the outside, not being part of it, we think it's a good thing. But time will show."
He said NIB was refocusing towards small and medium-sized enterprises (SMEs) and the mass affluent retail market, steering away from traditional high street banking and real estate.
Looking forward to 2012, he said: "We can slowly and surely build a nice bank in Ireland, not focusing on real estate but on SMEs."
Mr Borgen said the market environment remained "very challenging" in Ireland while he was "comfortable" with how the economy was developing in Northern Ireland. Danske's Northern Irish unit Northern Bank booked 1.4 billion Danish crowns ($252.9 million) in loan losses last year.
Referring to 2010 in Ireland and Northern Ireland, he said: "We will have lower impairment charges than in 2009, but still at the higher level ... We cannot rule out certain bumps but we hope and think it is going to be a falling trend."
He said the property market would account for roughly the same share of impairments as in 2009.
He said the group's aim was to grow slowly in Northern Ireland too.
Danske's business in the Baltic region, where Latvia has been hit especially hard in the global crisis, could swing into the black in 2012, Mr Borgen said. "If you ask me: 'can we make a profit after loan losses in one year, can we do that in 2012?' Yes. Do I say we will? Not necessarily, but we could."
Danske's largest presence in the region is in Estonia, which has made it best through the crisis; its smallest is in Latvia.
Mr Borgen said Danske's Baltic loan losses would remain high this year but be below last year's 2.7 billion crowns, and the trend throughout the year would be falling.
"If the economy shows we are bottoming out, we see some return and they join the euro in 2011, we will slowly strengthen our position in Estonia," he said. "That will be 100 per cent organic growth."
"In Latvia we are very comfortable with having a minor position, and we have no plans to expand that," he said, adding that Danske would continue in that market to support corporate clients who are customers elsewhere and need Baltic service.
Danske is the Nordic region's second-biggest lender after Nordea and the third-biggest bank by market value.
Reuters