LHV Group Updated Financial Plan for 2020 - Seite 3

Loan repayments of existing loans will be slower than planned. The number of new loan applications has clearly dropped, but LHV will continue providing loans, even in the deepest of crises. We have opted for a client-tailored approach in our loan decisions, both during boom-times and crises. On its path to recovery, the Estonian economy requires an open mind-set to financing. This approach will also show our loyalty to our clients. All in all, slower-than-planned loan repayments and the issue of new loans to some extent will still contribute to the growth in LHV's loan portfolio in 2020.

The greatest factor affecting the financial results is the write-down of loans. For years, we have emphasised that the loan write-downs will be lower-than-planned during a strong credit cycle, but may increase multi-fold during a decline. In the updated financial plan we are forecasting the greatest increase in write-downs in Q2, albeit individual, client-based write-downs may be expected during the following quarters.

From a strategic perspective, LHV will keep striving towards growth, albeit occasionally at a slower pace. Although our revenues are growing, compared to 2019, compared to the previous financial plan, we will have to lower the revenue target. Nonetheless, this can be partially covered by the cut-back on new recruitments and the postponement of certain investments. We strive to maintain a team that is as strong as possible in order to fulfil our coming growth ambitions.

LHV's pension fund management has largely been counter-cyclical. Even though the conservative approach produced a gap in terms of performance in the last few years, the decline in financial markets over the past few months has had the smallest impact on LHV's actively managed pension funds. As a result, fund managers are now in a good position to choose suitably priced assets. Pillar II payments suspension planned as one of the state supplementary budget monetary sources will reduce the previous volume of funds by ca 3% in 2020.

The virus-induced economic shutdown has been unexpected.  Depending on the restoration of the status quo, the economic decline for the year is estimated between 5% and 20%. As with the Great Recession the current downfall of the economy is being solved by central banks by way of expanding the money supply at an unprecedented scale. We have seen the virus wreak havoc on the economy, while the counter-measures taken by central banks and the support packages of governments will have a time lag. Various forecasters tend to agree that the sharp decline will be followed by an exponential growth.