OREANDA-NEWS. May 04, 2012. GDP growth slowed in the Baltic countries in Q4 2011 in tandem with a weaker global economic environment. Nevertheless, the Estonian economy did grow in real terms by 4.5 per cent in Q4 2011. As a result of structural adjustments, the Estonian economy has become stronger and more resistant to the impact external disruption. Whilst a further slowdown is expected in 2012, Estonia is expected to achieve positive growth, fuelled by stable exports and increasing domestic demand. Unemployment has fallen and incomes have started to rise gradually while inflation retreats and will continue to do so going forward, reported the press-centre of Swedbank.

In Q1 both the bank’s financial results and the economy as a whole were influenced by a fall in euro-base interest rates. “The current low interest rate environment suits borrowers and it supports our national economy, but it is not as beneficial for depositors, and it has also impact on the bank's quarterly result“ – says Priit Perens, Head of Swedbank Estonia.

Swedbank Estonia reported a profit of EUR 52.2m for Q1 2012 compared to a profit of EUR 44.6m a year previously. The increase was due to lower net credit recoveries amounting to EUR 8.8m.

According to the bank’s forecasts, significant increases in short-term or long-term interest rates are not expected this year, however, long-term interest rates should start to grow in one or two years.

Last year, the Estonian economy was driven by exports, however in Q1 the leading driver was domestic consumption. This was influenced by an increasing number of housing transactions as well as increasing business activity.

“It is good to know that the economic base for the growth is quite strong. Even if export volumes were to fall by 20%, the impact on  jobs or wages would be negligible,“ Perens says.

The number of employees in Swedbank in Estonia decreased by 56 (4 per cent) in the first quarter which was mainly due to natural movements.

For years customers have increasingly migrated to electronic channels. “Offering high-level personalized advice is very important for Swedbank and in 2012 we will continue to focus  on improvements in service quality. The award “Best Estonian Customer Service Representative 2012” was won by Kristiina Timosina, our call centre specialist in the face of stiff competition from a wide range service industries,“ Perens says.

With its contributions Swedbank aims to strengthen both social and financial stability in Estonia.
For example, as a founder of the business cooperation network “Unistused ellu!“ (Dreams Come True), which was set up in March at the Estonian Chamber of Commerce and Industry, Swedbank continues to support Estonian entrepreneurship-oriented activities.

Loans and deposits

Lending volumes decreased by 6 per cent compared to Q1 2011 and by 1 per cent compared to Q4 2011. On annual basis the largest volume decrease came from the corporate segment, despite that new sales activity was strongest in this segment.

Overall, the decline of the loan portfolio is expected to slow down in the near future in Estonia. New corporate lending and leasing will compensate for the effects of amortisation and the same trend will also be evident in the private lending and leasing portfolios. Swedbank’s market share in lending was 40.4 per cent as of 29 February 2012 (40.3 per cent at the end of Q4 2011).

Whilst the deposit portfolio increased by 8 per cent year-on-year, it declined by 1.6 percent compared to Q4 2011. The decrease in portfolio was attributed mainly to the corporate segment.
On an annual basis, a positive trend is evident both in private and corporate segments. Swedbank’s deposit market share was 45.2 per cent as of 29 February (46.2 per cent as of 31 December 2011). The loan-to-deposit ratio was 118 per cent (117 per cent at the end of Q4 2011)

Credit quality

Net recoveries amounted to 8.8m in Q1, compared with EUR 1.0m for the first quarter 2011. Improvement of credit quality was evident in both corporate and private portfolios. Impaired loans, gross, continued to decline in the first quarter and amounted to EUR 379m (EUR 504m in Q1 2011). The improvement in portfolio quality was mainly due to ratings upgrades, good new sale quality and work-outs of defaulted customers from the portfolio.


Revenues and costs

Total income decreased by 4 per cent year on year, mainly due to lower net interest income. Net interest income decreased by 9 per cent compared to Q1 2011. The decrease in the market base rates and continuing lending portfolio amortisation impacted negatively on net interest income, while increased deposit volumes had a positive effect.

Net commission income decreased by 4 per cent compared to Q1 2011. The decrease was mainly driven by lower revenues from card services and from securities.

Expenses decreased by 10 per cent year-on-year, primarily driven by lower IT and other costs. 

The number of full-time employees were 1476 Q1 2012.

The cost/income ratio was 0.38 (0.41). Cost efficiency remains a high priority in a slow growth environment.

Customer focus
Baltic Banking continues to strengthen its customer-oriented business model in 2012. The bank is reviewing its distribution and service model to gear up for the shift to a next-generation banking model. This model is based on ever more effective electronic channels for basic banking services and the usage of branches primarily to advise customers with more complex needs. Focus on the customer has also driven the development of Estonia’s first tax report interface in Swedbank’s internet bank. This innovation helps customers to keep track of transactions and fill in tax returns.