OREANDA-NEWS. October 31, 2012. “Swedbank's results have been exceptionally affected by record low Euribor rates. Other aspect that has considerable effect on our result is entreprises' higher interest in taking out loans. A summer survey conducted by Swedbank revealed that Estonian industries are preparing for investment. It seems the time to invest has arrived this autumn and this is evident in our loan portfolio which is growing after quite an extended period of decline,” – says Priit Perens, Head of Swedbank Estonia, reported the press-centre of Swedbank.

In Q2 2012, GDP grew by 2.2 per cent year on year in Estonia. Due to uncertain external demand, export growth has stabilized and economic growth was increasingly driven by domestic demand. Job creation and wage growth supported household spending. The strength of investments is probably related to an improving overall economic climate – low public sector debt, marginal budget deficits and the availability of credit.

In Q3 2012 Swedbank Estonia earned a net profit of EUR 38.5m In Estonia reported profits amounted to EUR 136m for the first nine months compared to EUR 137m for the same period in 2011.

Loans and deposits

Lending volumes increased by 0.9 per cent in Q3 (0.1 per cent during the first 9 months). Lending portfolios in Estonia increased, supported by corporate lending and consumer credit.

Q1-Q3 2012 deposits increased by 4.8 per cent (+EUR 247m), with deposits from private customers growing by 5.2 per cent and corporate deposits by 4.5 per cent. While corporate deposit growth was driven by the accumulation of funds from exports, private deposits were supported by job creation and wage growth. Swedbank’s market share for deposits in Estonia was 46.9 per cent on 31 August (45.6 per cent as of Q4 2011). The loan-to-deposit ratio was 112 per cent (117 per cent as of Q4 2011).

Credit quality

Net recoveries amounted to EUR 11.5m for Q1-Q3 2012, compared to a EUR 0.6m credit impairment increase for the first nine months of 2011. Recoveries in Estonia were generated by the corporate and mortgage portfolios. Due to write-offs, impaired loans, gross, continued to decline in Q3 and amounted to EUR 316m (EUR 406m in Q4 2011). The improvement in credit quality was mainly due to rating upgrades and increased collateral values as well as increases in new higher quality lending volumes.

Risk-weighted assets have decreased by EUR 193m since the beginning of the year to EUR 4351m. Risk weights have decreased in most lending portfolios due to the gradual positive impact of rating migrations.

Revenues and costs

Net interest income decreased by 14.6 per cent (EUR 22.5m) for Q1-Q3 2012. The decrease was due to lower base rates. Year on year net commission income decreased by 1.9 per cent (EUR 0.8m) compared to the same period in 2011. The decrease was mainly due to lower commission income from card payments and securities. Daily banking activity remains strong. The number of active customers and the number of transactions continue with upward trend, reflecting improved macroeconomic conditions in Estonia.

In Q1-Q3 expenses decreased by 9.2 per cent (EUR 7.8m) year on year, mainly due to lower IT and consulting expenses. The number of full-time employees fell by 69 representing a 9 month decline of 4.5 per cent. For 9 months year on year, the cost/income ratio was flat at 0.38.

Customer focus

In recognition of Swedbank’s e-channel development, Global Finance magazine named Swedbank’s Internet Banking facilities the best in Estonia and Latvia and Swedbank’s mobile bank in Estonia was named the best in the entire Central and Eastern European region. In addition, Euromoney named Swedbank the best bank in Estonia.

As for outreach, Swedbank has created a business ethics scholarship programme for Estonian doctoral students, an agreement which was signed with the Ethics Centre at the University of Tartu and the University of Tartu Foundation.

The first application round for Prototron, a prototype funding foundation run by Swedbank and Tallinn science park Tehnopol, led to 100 applications from which three projects received funding for prototyping.

"A survey conducted by Swedbank revealed that there are three basic problems for start ups in Estonia.These are firstly, too little inter-disciplinarity, then, problems with international marketing and sales capabilities and finally, a lack of funding options to create the first prototypes necessary for attracting investment for further development. Quite an impressive number of applicants shows that we’re on the right track," Priit Perens said, adding that Prototron is Swedbank's solution for the last of those three problems.

In recognition of the bank’s earlier CSR projects Swedbank was named 'Most Responsible Company of the Year' by the City Enterprise Board of Tallinn.