OREANDA-NEWS. July 25, 2011. Economic recovery continues in Estonia. In the first quarter of 2011 Estonia’s GDP increased by 8.5 per cent on last year and is supported by manufacturing exports, as well as increased investment activity and gradually recovering household consumption, reported the press-centre of Swedbank.

Inflation continues to rise mainly driven by external factors, but also due to local factors such as little domestic competition. In May 2011, annual consumer price inflation reached 5.4 per cent. The labour market is gradually improving, as are customer expectations.

“We have made progress with our performance and efficiency in Estonia and this shows in our continuously sound cost income ratio,” – said Priit Perens, Head of Swedbank Estonia, referring to the cost income ratio of 0.35 (0.36 a year ago). According to Perens, the strong result has been achieved thanks to increased customer activity.

“During the first half of the year we have witnessed the strengthening of our franchise value,” Perens said.

“Over the year, the number of our active clients has increased by almost 9600. We are equally satisfied with the results of the recent reputation survey, which ranks Swedbank highest in all sectors for the fourth year in a succession,” he continued.

 “Changing market situation going forward - new market opportunities for the companies, followed by increased financial market activity and customer’s readiness are driving new expectations for lending. As the market leader, we see it as our responsibility to offer a solution that will contribute to sustainable growth of all stakeholders and not to lead borrowers to make poor decisions. In spite of the availability of credit, we hope customers will use these opportunities in a reasonable way in the future,” Perens noted.

Swedbank Estonia reported a profit in the second quarter of 2011 of EUR 32.3m, compared with a profit of EUR 6.9m a year ago. The result is mainly due to credit impairment relief in the first half of the year and stronger operating results.

Profit before credit impairments increased by 4.2 per cent compared with the same period last year. Income improved by 2.4 per cent and was led by higher net interest income.

The customers of Swedbank have used 16 per cent more cards payments compared with the same period last year.

Loans and deposits
Lending volumes decreased by 9.4 per cent on last year. This was mainly due to amortization and limited new sales resulting from continued weak demand. A slight increase in requests has been noted, in particular from corporate customers. Lending volumes are expected to grow when the economy shows signs of long term sustainable growth patterns. Swedbank’s market share in lending is 41.3 per cent at the end of May as Swedbank’s priority is to support and promote sustainable economic and financial development of its home market countries and hence our customers, not necessarily to maintain market share.

Deposits increased by 0.8 per cent in the first half of 2011. Swedbank’s deposit market share remained almost stable over the year at 46.5 per cent, decreasing 0.2 per cent. The loan-to-deposit ratio decreased to 127 per cent (142 a year ago).

Credit quality
Net recoveries in the second quarter amounted to EUR 15.3m compared to EUR 40m last year. Impaired loans amounted to EUR 529m by the end of the second quarter (603m a year ago). 

Impaired loans decreased due to write-offs and as a result of analyses done together with our customers to find better workable financial and business solutions.

Due to improved risk levels and slowly recovering customer demand in the form of both investor and customer confidence, new lending quality together with credit portfolio management activities are to ensure well-balanced and sustainable growth.

Revenues and costs
Net interest income increased by 15 per cent from last year.

Payment processing-related commissions excluding one-off provisions decreased by 8 per cent on last year because of new pricing after the adoption of the Euro. Over the year, the number of active customers has increased by almost 9600 (of which 5900 were private and 3700 business clients). 

Expenses remained stable compared to the same quarter last year. Staff costs increased due to more provisioning for employee training and more hiring over the year. The number of full-time employees increased by 68 over the first six months of 2011.

In accordance with the market recovery, marketing expenses grew during last year, as a new communication concept ‘Under the Oak Tree’ was launched to strengthen the Swedbank brand.

Implementing the relationship bank business model
The bond between Swedbank and its customers continues to strengthen and this is reflected in good results in recent reputation surveys. In Estonia, Swedbank is ranked highest in all sectors for the fourth year in a succession according to a reputation survey lead by TNS Emor, while in Latvia and Lithuania, Swedbank is ranked first in the financial sector.

In June the Swedbank donation environment, which is unique in the Baltics, celebrated its third year of activity. During this 3year period, donations have been made to 38 organisations, which have made a positive impact on society at large. Together with contributions from Swedbank these organisations received 383 000 euros.

Swedbank's Q3 2011 financial results will be released on 25 October 2011.