LHV Group Updated Financial Plan for 2020 - Seite 2

Compared to the plan disclosed in February, the group’s net profit will nearly halve, reaching EUR 19 million, out of this EUR 7.5 million has already been earned in Q1. Possible success fee of Asset Management has not been forecast in the financial plan.

Cost/income ratio is improving due to the growth of the loan portfolio in the end of 2019, which increases monthly income by almost EUR 0.9 million. As LHV Group has expressed intent to replace the more expensive foreign deposits involved in the transaction with mortgage bonds in 2020, this will reduce costs and have a positive effect on the cost-income ratio.

LHV's capitalisation and liquidity will remain strong. Compared to the financial crisis, the capital levels of European banks have doubled. LHV is no exception. Our Tier 1 own funds are planned at 12.6%, with the planned total capital adequacy ratio being 17.6%. As regards liquidity, deposits exceed loans by more than two times. Furthermore, LHV's liquidity structure is dispersed, consisting of deposits engaged from Estonian customers, financial intermediaries and various deposit platforms. We are on schedule with the covered bonds project, which will further disperse the financing options and lower the costs.

Comment by Madis Toomsalu, Managing Director of the LHV Group:
"The assumptions for the preparation of the updated 2020 financial plan were a sharp deterioration of the economic environment, a clear slowdown in the growth of loan volumes and a multiple increase in loan impairments.

The virus-induced economic shutdown has been completely unexpected. A systemic risk has materialised. As a result, nearly all businesses have to deal with a partner's inability to fulfil obligations. Upon materialisation of a systemic risk, the only reasonable course of action for banks is to provide their loan clients with flexible solutions, including grace periods. Any other course of action would trigger a chain reaction, with the struggle to serve the loan causing default in payment to employees, suppliers and partners, undermining the entire economy.

LHV was the first bank to announce grace periods for business clients in March. Because of this and also the sureties measures provided by KredEx a bulk of the clients can overcome temporary difficulties by way of a grace period. Likewise we started to offer private customers grace periods with a simplified procedure. We will not make changes in other terms and conditions of loan agreements during the grace period. For private clients, the grace period will be provided without an agreement fee. The temporary solution will contribute to economic recovery the most.