OREANDA-NEWS. November 01, 2011. "The Estonian economy is in good shape. Our economic growth is broadly based on exports and recovering investments. The customers’ burden of debt is continuously reducing. Against a backgound of overall economic growth our results are good,” says Priit Perens, Head of Swedbank Estonia, reported the press-centre of Swedbank.

According to Perens, the continuing declining share of impaired loans in Q3 was a pleasant trend. However, economic recovery was not yet reflected in consumer behavior. "Hearing the messages around the world, consumers tended to be cautious and to deposit their savings, while companies were still careful when initiating new projects," said Perens.

Total card payments increased for the second consecutive quarter. "In order to provide our active customers with additional benefits - especially more favorable banking services, we expanded our bonus program to include debit card payments as well," said Perens.

“Unlike many other countries, credit availability in Estonia has not reduced. However, it should be noted that an increase in the price of money caused by the debt crisis within the euro zone may start to concern Estonia at some point, “ noted Perens.

In financially challenging times, recovery in Estonia economy has been faster than expected. In the Q2 2011, GDP grew by 8.4% in Estonia year on year. Recovery progressed hand in hand with improved investment and some growth in private consumption. The latter was supported by new jobs created and increased wages. However, economic growth was still very dependent on exports. Domestic demand remained far below pre-crisis levels due to high unemployment, part of which is structural.

In Q3 2011, Swedbank Estonia reported a profit of EUR 63.1m, compared to a loss of EUR 42.3m in the previous year. Profit before credit impairments increased by 7.4 per cent year on year. Income improved by 10.7 per cent and was driven by the growth of net interest income by 8.9 per cent and decrease of net commissions by 5.2 per cent.

Loans and deposits
Lending volumes decreased by 9.5 per cent from the end of Q4 2010. This was mainly due to amortisation and weak demand for new lending. Companies have become more cautious about the future and therefore increasingly rely on their own resources to satisfy their own borrowing needs rather than using bank?s financing. Moreover, private consumption has not yet recovered enough to make a mark on bank lending. Therefore, de-leveraging continued in Estonia and the bank estimates that the lending volumes will continue to decline into Q1 2012.
Deposits increased by 7.2 per cent from Q4 2010 and by 3.1 per cent in Q3. The loan-to-deposit ratio was 121 per cent (143 per cent at the end of Q4 2010).

Credit Quality
Net recoveries were reduced by EUR 13.7m in Q3, compared to the increase of EUR 1.1m last year. Impaired loans, gross, continued to decrease in Q3 reaching EUR 491m (EUR 561m at the end of Q4 2010) and this trend is expected to continue.

Net recoveries were driven by the corporate portfolio while the private portfolio generated additional credit impairment as the situation in labour market improved only slightly. Recoveries in the corporate portfolio (rating upgrades) have been remarkable. The number of financially vulnerable companies has decreased.

Revenues and costs
Net interest income increased by 8.9 per year on year. Payment processing-related commissions excluding one-off provisions decreased by 5.2 per cent. From Q1-Q3, the number of active customers increased by almost 10700 (of which 7000 were private and 3700 business clients).

Expenses increased by 16.7 per cent year on year as the result of higher staff costs and new marketing activities. The number of full-time employees was remained stable. The cost income ratio was 0.38 (Q3 2010 ratio was 0.36).

Customer focus
Swedbank continued to implement a more structured approach to customer relationship management in all retail operations – a process which will be completed by the end Q4 2011. For the bank’s card users Swedbank Estonia launched a customer loyalty program, allowing customers to earn benefits by making payments with the bank’s card. The bank received positive initial customer feedback for its efforts to develop stronger partnerships with them. In Q3 international magazine Global Finance named Swedbank as the best consumer internet bank in the Baltic States in 2011 and in Estonia Swedbank was recognized as the most customer friendly Estonian company.

Q4 2011 financial results will be published on 14 February 2012.