OREANDA-NEWS. May 04, 2011. The economic situation shows steady improvement in Estonia. In 2010 GDP grew by +3.1 per cent, in the last quarter of the year it was over 6%.The main contributor to economic growth is strong exports. Inflation has started to rise, mostly due to external factors such as increasing global commodity prices, reported the press-centre of Swedbank.

According to the Head of Swedbank Estonia , Priit Perens, the bank has been on a customer oriented course for some time and the product based approach is a thing of the past. “Today our customers can be confident that the bank is offering them only those services and products that they really need. We are constantly developing new and innovative solutions, like an Android application, to make our customers financial lives more convenient,” said Perens.

Customer behaviour has, in some respects, changed in Q1 2011. “Influenced by a refreshed economy and changes in the Commercial Code in January, the creation of new businesses has shot up, by up to 50% compared to previous months - we can see it from our customer base. 70% of those new companies have chosen Swedbank as their main financial partner. These new businesses are mainly operating in wholesaling, construction, accounting and web-based retail,” explained Perens.

The Estonian economy will continue to recover this year as well. “In the short term, growth will be exports driven, supported by a solid recovery of the economies of our close neighbours. Domestic consumption is recovering as well but will still remain modest throughout 2011,” explained Perens. „We can expect stronger growth in services exports in the near future," he added.

“We predict that both base interest rates as well as Euribor will rise over time. The reason behind the increase in base interest rates is the European Central Bank`s desire to manage rapid price growth. The Euribor rise reflects the increase in interbank lending costs. When interest rates keep rising it might inhibit investments into projects and developments, households will feel this change through increased debt servicing costs,” Perens said.

Swedbank in Estonia reported a profit of EUR 46 million, in Q1 2011 in contrast to a loss of EUR 17 million a year ago. The improved result was due to reduced credit losses.

Loans and deposits
A general deleveraging process continues as lending volumes decreased by 8 per cent compared to the same period a year ago and 2 percent compared to Q4 2010. The largest volume decrease has been seen in the corporate lending and leasing portfolio. As demand has been slow to pick up, new lending volumes have not grown steadily in the first quarter. An increase in new loans is expected in Q2-4.

Deposits have been same level as same period a year ago and decreased by 1% compared to the previous quarter. Swedbank Estonia’s financing market share was 41,9% percent – a decrease of 1,2 percent compared to the same period last year. The bank’s share of the deposits market was 46.0% which was a decrease of 1,1 percent compared to the same period last year. The loan-to-deposit ratio improved to 135 %.

Credit Quality
Credit impairment in the first quarter amounted to EUR -1 million compared to EUR 60 million a year ago. Impaired loans amounted to EUR 504 million at the end of Q1 2011 compared to EUR 562 million at the end of Q1 2010.

Revenues and costs
Total income increased by EUR 7.6 million compared to the previous year due to improvements in net interest income. Net interest income increased by 33 per cent compared to the same period a year ago. Lower local deposit costs and increasing euro market rates have had a positive impact on net interest income.

Net commission income has decreased by 9 per cent compared to the same period a year ago. Commissions related to card payment processing have increased due to higher customer activity (card turnover has increased over 15%) and payments related commissions have decreased due to introduction of Euro.

Expenses increased by 21% compared to the same period last year. The number of employees increased by 9 in Q1. The cost/income ratio was 0.39.

Activating the relationship bank business model
The economic recovery will provide new opportunities for growth. In 2011, Swedbank Estonia is moving towards a more customer oriented business model, which requires both raised competence on the part of employees and front line empowerment. The bank has already shifted its attention away from the previous product focused approach and aims to build stronger customer relationships, centered on an enhanced appreciation of the customer’s financial needs, followed by sound financial advice based on those needs. Swedbank is implementing this new business model and a structured approach to work with customers in all three Baltic countries this year.

In March, the well-known international magazine Global Finance singled out the best banks in its annual Central and Eastern European study. Swedbank was named the best bank in Estonia and Latvia.