RIGA — The two largest banks in the Baltics continue to lose money hand over fist as the economic recession drags on, according to the third quarter financial results.

SEB, the second-largest financial institution in the Baltics, announced Wednesday that it has lost over €400 million in the region over the first nine months of the year. Third quarter earnings at the group bank, which is controlled by the powerful Wallenberg family in Sweden, plummeted 99 percent as bad loans in the Baltics dragged down profitability.

Swedbank's bank revenue has declined by near 5 billion kronor (€485 million) from last year.

On Tuesday Swedbank, the region’s largest bank, announced that it posted a third quarter loss of 3.3 billion kronor (€320 million) due to the recession in the Baltics and Ukraine. The staggering loss compares with a profit of 2.5 billion kroner (€242 million) profit in the same quarter last year, forcing Swedbank to turn to shareholders to recapitalize the bank.

SEB President and CEO Annika Falkengren put a positive spin on the quarterly results, saying in a statement that “the economic situation in the Baltics remains challenging but we are beginning to see signs of stabilization.”

The two Swedish banks’ plunge into the red is expected given the increasing inability of Baltic countries’ businesses and individuals to repay loans, often taken out in euros during the “Baltic Tiger” boom years.

Earlier this month the head of Latvia’s banking association, Teodors Tverijons, told Baltic News Service that at their peak local banks racked up an aggregate profit of 378 million lati (€533 million).

However, this year aggregate losses by Latvia’s 27 banks would likely surpass €1 billion, Tverijons said, a sum that is approximately 4 percent of projected gross domestic product at the end of 2009.

The Finance and Capital Markets Commission has reported that the assets in Latvia’s banking system as of August had decreased 5.5 percent year-on-year to 21.6 million lats (€30.5 million).

It is not clear how many banks might be forced into insolvency as a result of the current crisis.

All three Baltic economies are expected to contract by double-digits this year, with Latvia set to shrink by as much as 20 percent.

In its quarterly report published Wednesday, SEB forecast that Latvia and Lithuanian GDP will continue to fall next year, while Estonia’s economy could be flat. Growth will resume in all three countries in 2011, the bank said, in the 3 to 4 percent range.