Market announcement

Title

LHV Group Updated Financial Plan for 2020

Message

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.

+--------------------------+---------------+------------------------------+
|                          |               |                      Previous|
|Key indicators            |Updated FP 2020|2019 results   Change  FP 2020|
+--------------------------+---------------+------------------------------+
|Financial results, EURt
+--------------------------+---------------+------------------------------+
|Total revenue             |         87,316|      73,818   13,498   95,647|
+--------------------------+---------------+------------------------------+
|Total expenses            |         44,773|      39,266    5,507   46,423|
+--------------------------+---------------+------------------------------+
|Impairment losses on loans|         19,357|       3,209   16,148    7,177|
+--------------------------+---------------+------------------------------+
|Earnings before taxes     |         23,185|      31,342   -8,157   42,047|
+--------------------------+---------------+------------------------------+
|Net profit                |         19,231|      27,092   -7,861   35,917|
+--------------------------+---------------+------------------------------+
|Business volumes, EURm
+--------------------------+---------------+------------------------------+
|Loans                     |          1,806|       1,687      119    2,165|
+--------------------------+---------------+------------------------------+
|Deposits                  |          2,985|       2,701      284    3,127|
+--------------------------+---------------+------------------------------+
|Assets under management   |          1,454|       1,374       80    1,576|
+--------------------------+---------------+------------------------------+
|Key ratios
+--------------------------+---------------+------------------------------+
|Cost / Income ratio       |          51.3%|       53.2%   -1.90%    48.5%|
+--------------------------+---------------+------------------------------+
|ROE (pre tax)             |          10.2%|       16.2%   -6.00%    18.1%|
+--------------------------+---------------+------------------------------+
|Capital adequacy          |          17.6%|       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
https://lhvbank.zoom.us/webinar/register/WN_JzDz7iVZQ0eE0grJLBlX_g.

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
Email: [email protected] (mailto:[email protected])