Published: 2020-04-21 07:01:00 CEST
LHV Group
Company Announcement

LHV Group Updated Financial Plan for 2020

Due to sudden changes in the economic environment, AS LHV Group is disclosing an updated financial plan for this year. Compared to the plan published in February, the planned growth of business volumes has been reduced, the volume of loan write-downs has been significantly increased and as a result the profit forecast has been lowered.

According to the updated financial plan, in 2020 compared to the previous year, revenues of the consolidation group will increase by 18%, expenses by 14% and loan write-downs sixfold, resulting in a decrease of consolidated net profit to EUR 19.2 million or by 29% when compared to 2019. In terms of business volumes, LHV estimates a 7% growth of the loan portfolio, 11% increase in deposit volumes and 6% increase in assets under management for this year.

Key indicatorsUpdated FP 20202019 results ChangePrevious
 FP 2020
Financial results, EURt     
Total revenue87,31673,818 13,49895,647
Total expenses44,77339,266 5,50746,423
Impairment losses on loans19,3573,209 16,1487,177
Earnings before taxes23,18531,342 -8,15742,047
Net profit19,23127,092 -7,86135,917
Business volumes, EURm     
Loans1,8061,687 1192,165
Deposits2,9852,701 2843,127
Assets under management1,4541,374 801,576
Key ratios     
Cost / Income ratio51.3%53.2% -1.90%48.5%
ROE (pre tax)10.2%16.2% -6.00%18.1%
Capital adequacy17.6%18.0% -0.4%17.5%

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.

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.

LHV is used to navigating storms. When it comes to change, it is the speed of adaptation that counts. We expect to also do well this time."

To introduce quarterly results and the financial plan LHV is organizing an investor meeting, which this time will be conducted in the form of a webinar via video communication platform Zoom. The virtual investor meeting will take place on 21 April at 9:00 a.m. Presentation will be made in Estonian. Registration is open via the link

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank and LHV Varahaldus. LHV employs over 450 people. LHV’s banking services are used by nearly 217,000 clients, and pension funds managed by LHV have nearly 178,000 active clients.

Priit Rum
Communication Manager
Phone: +372 502 0786


LHV Group Updated Financial Plan 2020-EN.pdf