Nov. 17 (Bloomberg) -- Nordea Bank AB, the Nordic region’s largest lender, expects this year will be the company’s most difficult in Latvia and that next year loan losses may narrow.

“For us and the market, 2009 was the most difficult year and 2010 will definitely be better,” Valdis Siksnis, head of Nordea’s Latvian operations, said yesterday in Riga. Banks overall will make a loss in Latvia next year “and loan losses will be quite high in 2010, but the highest losses are perhaps behind us.”

Nordea posted a loss of 16.4 million lati ($34.7 million) in Latvia in the first nine months, compared with a profit of 14.9 million lati a year earlier, after setting aside 38.5 million lati for loan losses.

Estonia, Latvia and Lithuania have struggled with the worst recessions in the European Union after a credit-fuelled boom turned to bust. Latvia was forced to ask the International Monetary Fund, the European Union and Sweden for a 7.5 billion- euro ($11.2 billion) bailout last year. The government is cutting state salaries and increasing taxes to improve its finances. Latvia’s economy contracted an annual 18.4 percent in the third quarter.

About 7 percent of Nordea’s loans in Latvia are at least 90 days in arrears, said Siksnis, 37. In the Latvian banking system as a whole, so-called non-performing credit amounts to 15 percent of loans.

Nordea has repossessed 20 properties in Latvia since the crisis began, including land plots, apartments and private houses, and has court proceedings against another 150 property owners, Siksnis said. While the bank is open to selling the properties, it “isn’t in a rush to do so and plans to wait until the real-estate market in Latvia recovers,” he said.

House Prices Stabilize

House prices in Latvia are unlikely to fall any lower, Siksnis said. Apartment prices in Riga rose about 1.5 percent in September to about 500 euros a square meter. That compares with a peak of 1,720 euros a square meter in March 2007, according to realtor Latio.

Nordea’s market share in Latvia is likely to increase in coming years as other banks in the country decrease their loan portfolios, the lending market decreases in size, and as Nordea attracts more deposits and increases lending to large companies, Siksnis said.

Economic Slowdown

Latvia’s economic contraction will continue at a slower pace next year, with growth resuming in 2011, Siksnis said.

Latvia is poised to devalue its currency at least 15 percent by the end of 2010 to boost exports and cut the budget gap, RBC Capital Markets and Barclays Capital said last month.

The shares of Swedbank AB and SEB AB, the Swedish banks that are the biggest lenders in the Baltic countries, as well as the Swedish krona, have declined in the past year amid speculation that Latvia may devalue its currency.

The risk of a currency devaluation may abate as lawmakers will probably agree with international lenders and approve the 2010 budget, Siksnis said. Once the budget is agreed with the IMF and European Commission, the likelihood of a devaluation gets “smaller and smaller,” he said. “It seems the commission is approving the steps the government is making,” Siksnis said.

Nordea may be interested in buying Parex Banka’s Baltic retail business, TV3’s Neka Personiga reported last month, without saying where it got the information. Siksnis declined to comment on potential acquisitions in Latvia.

To contact the reporters on this story: Niklas Magnusson in Riga at nmagnusson1@bloomberg.net; Aaron Eglitis in Riga at aeglitis@bloomberg.net.

Last Updated: November 17, 2009 02:41 EST