OREANDA-NEWS. July 27, 2010. The second quarter has brought several positive notes to the Estonian economy: the industrial output and exports have grown and the number of registered job seekers has decreased. Also the Ecofin Council (European Union Economic and Financial Affairs Council) made a positive decision on the adoption of the euro in Estonia from 1 January 2011. All that has contributed to the increase of confidence of companies and consumers, which in turn has affected their consuming habits and is also reflected in Swedbank's quarterly results, reported the press-centre of Swedbank.

"For some time there have been positive signs in the economy and in the clients' behaviour, and now we can see them in the banking sector as well – after negative economic results for five quarters in a row, this quarter we can show a positive result," said Priit Perens, Country Head of Swedbank in Estonia.

He noted that the financial results are still significantly affected by reserves, which the bank has formed and will form for possible loan losses. In cooperation with clients the bank also continues to look for solutions for those clients, who have difficulties with paying back the loans. "However, the loan portfolio as a whole has improved, and the growth of impaired loans has halted. Also we can see that our clients are more interested in taking loans again, both on private and corporate side, although the debt burden of the economy will continue to decrease," said Perens.

When looking into the second half of the year, Perens pointed out the most important focus – changeover to the euro. "We have already started adjusting our corporate clients' POS terminals for the euro and we would also like to help our clients in every possible way with their financial matters, in order to make the transition as smooth and easy as possible," said Perens. He also assured that bank would not raise any service fees due to the euro adoption.

Brief summary of the results
Operating profit of Swedbank in Estonia increased by 11 per cent to EEK 736 m before provisions. Swedbank Estonia's net result for Q2 was profit of EEK 108 m (half-year net result was loss of EEK 164 m). The result is affected by the improvement of the overall economic environment and an increase in the efficiency of the bank's activities.

Revenues increased by 10 per cent, while operating expenses increased by 8 per cent. Deposits increased by 2 per cent during Q2, while the loan portfolio declined by 2 per cent.

Volumes
Decrease of the loan portfolio by 2 per cent is mainly a result of continuously low level of new lending. Although credit demand remains low, increased activity in retail lending was noted during Q2. Despite the slight seasonality effect, it is a sign of higher consumer confidence encouraging clients to consider loan-financed investments.

At the end of Q2 Swedbank's market share in the loan market stood at 43 per cent. Deposits increased by 2 per cent from Q1 and Swedbank's market share stood at 47 per cent.

As a result of increasing deposit volumes and reduced lending, the loan-to-deposit ratio improved to 142 per cent during the quarter.

Revenues
Revenues totalled EEK 1.147 bn in Q2, having increased by 10 per cent compared to Q1. Net interest income amounted to EEK 698 m, having increased by 15 per cent compared to Q1.

Results were positively influenced by the impact of expected changeover to the euro, a decrease in the difference between the euro and kroon interest rates as well as lower cost of funding, whereas reduced lending activity had an adverse effect. There is still a negative impact from impaired loans on net interest income.

Service fee income remained unchanged compared to Q1.

Credit quality
Impaired loans, gross, totalled EEK 9.4 bn on 30 June 2010 (EEK 8.3 bn on 31 December 2009). Provisions for credit impairments amounted to EEK 5.9 bn at the end of Q2 (EEK 5.5 bn in Q1).

The level of monthly credit impairments is showing first signs of stabilization and the peak of credit impairments is expected to have been reached in the corporate portfolio. If similar developments in the economy will continue, positive changes can be expected in the corporate impaired loans portfolio.

Regarding the private portfolio, the positive effect of the recovery is expected to be delayed as the level of impaired loans is dependent on the development of the country's unemployment levels.

Expenses
Compared to Q1, expenses increased by 8 per cent, to EEK 411 m. This is mainly due to the increase in planned IT-works, which are related to preparations for the euro changeover. The cost/income ratio was 0.36, which indicates very high effectiveness.

The number of employees remained the same as in Q1, and the number of branches was reduced by two. Swedbank has 65 branches and maintains its position as the bank with the most extensive network of branches and the largest number of personnel in Estonia.

Messages for local customers:
In Q2 Swedbank received recognition from its clients and the general public. Swedbank is the most reputable company in Estonia according to an annual survey of reputation of large companies conducted by the marketing research and consulting company TNS Emor.
The bank will focus on maintaining a strong and long-term relationship with the clients, for whom Swedbank is the home bank, and will also offer advice and support to manage the clients' finances.

In relationships with clients Swedbank will keep a focus on informing and advising clients on how to manage their budget reasonably. Besides direct communication with the clients, the Institute of Private Finances contributes to informing the general public about financial matters. The institute was established by Swedbank at the end of last year.

In June the bank has launched a new service – charity consulting, which is becoming an inseparable part of personal wealth management in the banking sector. Swedbank is the first bank in the Baltic countries that has started consulting its private banking customers in the field of philanthropy and charity. Swedbank gives advice on where to give a single donation as well as how to create local foundations.

In order to support people in difficulties, the bank has founded a Food Bank in cooperation with the Estonian-Dutch charity fund Paikeselill. The Food Bank's aim is to provide support to families in need.

Q3 2010 results of Swedbank will be published on 21 October 2010.