OREANDA-NEWS. October 26, 2010. Q3 did not bring any significant changes to the Estonian economy compared with Q2. The quarterly keyword was stability. Levels achieved in the first half-year within industrial production and export growth were stable, and the number of registered job-seekers continued to decline slowly. The economic situation is characterised by preparations for the euro changeover on 1 January 2011, by both banks and businesses, reported the press-centre of Swedbank.

"The bank's financial results are significantly affected by considerably smaller provisions made for possible loan losses in Q3, compared with previous quarters," says Priit Perens, Head of Swedbank in Estonia.

The smaller provisions affected the bank's overall financial results in a strongly positive way. The overall situation in the loan portfolio has improved, especially on the corporate side, and the growth of impaired loans has come to a halt. We can also see that our clients are once again more interested in taking loans, both on the private and corporate side, although the loan portfolio as a whole is decreasing.

"Every day we can see that our customers are very prudent when making decisions about borrowing, which is perfectly reasonable," says Priit Perens. "It may be metaphorically called as a "peaceful" quarter - without major surprises. At least for this quarter, the bank could return to its normal calm way of working, which we last saw prior to the crisis."

Brief summary of the results

The operating profit of Swedbank in Estonia decreased by 2 per cent to EEK 718 million before provisions. Swedbank Estonia's net profit for Q3 was EEK 662 million (with a YTD net profit of EEK 498 million). These results are significantly affected by the considerably smaller provisions made by the bank for possible loan losses in Q3.

Revenues decreased by 2 per cent, and operating expenses also decreased by 2 per cent. Deposits fell by 3 per cent in Q3, while the loan portfolio declined by 2 per cent.

Loans and Deposits

The decrease in the loan portfolio by 2 per cent is mainly a result of the continued low level of new lending. Although credit demand remains weak, increased activity in retail lending was noted during Q3 compared with the beginning of the year. This is a sign of higher consumer confidence, and thus encouraging clients to consider loan-financed investments.


At the end of Q3, Swedbank's market share on the loan market was 43 per cent. Deposits decreased by 2 per cent from Q2 and Swedbank's market share remained at 46 per cent.

Credit quality

Impaired loans, gross, totalled EEK 8.8 bn on 30 September 2010 (EEK 9.4 bn on 30 June 2010). Provisions for credit impairments amounted to EEK 5.5 bn at the end of Q3.
The decreasing level of credit impairments on the corporate side reflects the signs of economic stabilisation. Provisions for possible loan losses also declined in the quarter. With regard to the private portfolio, the positive impact of the recovery is still expected to be delayed as the level of impaired loans depends on the development of the country's unemployment levels.

Revenues and costs

Revenues totalled EEK 1.12 bn in Q3, having decreased by 2 per cent compared with Q2. This decline came mainly from financial items, further to the fall in value of the Swedbank Private Debt Fund unit by EEK 64 million.

Net interest income amounted to EEK 738 million. Results were positively influenced by a decrease in the difference between the euro and kroon interest rates, whereas reduced lending activity had an adverse effect.

Compared with Q2, expenses decreased by 2 per cent to EEK 404 million. This is mainly due to a fall in personnel costs during the vacation period. The cost/income ratio was 0.36, which indicates very high effectiveness.

Further to the unification process of leasing and the Bank's car-park maintenance companies, goodwill in the amount of EEK 39 million was written off. This was announced by the Bank in August.

The number of employees rose by 31 (compared with Q2), and the number of branches remained stable at 65. Swedbank maintains its position of having the most extensive network of branches and the largest workforce within the banking sector in Estonia. The Bank also offers a wide selection of services via electronic channels.

Forecasts and strategy
Swedbank?s objective is to promote a sound and sustainable financial situation for many households and businesses. The Bank focuses on strong and long-term customer relationship management. The Bank will continue to focus on maintaining a strong and long-term relationship with clients, providing advice and support in money-management matters.

Swedbank's activities in Estonia were recognised internationally on several occasions in the third quarter. The financial magazine Euromoney named Swedbank as the best bank in Estonia, and the same title was also given to Swedbank in Lithuania. The financial magazine Global Finance chose Swedbank's internet bank as the best private client internet bank in Estonia, Latvia and Lithuania.

The Baltic E-Banking Report 2010 – a survey of the quality of the mobile and online banking services offered by banks operating in the Baltic States – was recently introduced at the Baltic Economic Forum. The survey acknowledged Swedbank's internet bank and mobile bank as being leaders in the market.

Events worth mentioning in the third quarter include the renewal of the internet bank, during which a joint private and corporate client internet bank environment was opened.

In September, the Bank introduced new pricing methodology – the Mortgage Base Rate – in parallel to the current logic of calculating the mortgage interest rate. From now on the client can decide which interest offer suits them best. The mortgage base interest rate includes the money market interest rate, i.e. Euribor, the economic environment risk factor, and the client's margin. Such division is more transparent than the interest logic currently used on the market and allows the client to see more clearly how the final interest rate is formed. The new principle reflects one important factor directly – the risk level of the economic environment.

In relationships with clients, Swedbank will continue to focus on informing and advising clients on how to manage their money matters. In addition to direct communication with 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.

Swedbank's results for the full-year 2010 will be published on 8 February 2011.