OREANDA-NEWS. July 24, 2013. “The Estonian real estate market experienced a busy spring which shows in our mortgage porfolio. Since May, we have seen growth for the first time since September 2008. Consequently, this growing activity in the property market is already putting pressure on prices in certain residential areas.

As for the corporate segment, investments are lower due to continuing uncertainity in export markets. Companies using loan money to invest, still tend to be focussing on improving efficiency rather then boosting production capacity,” said Priit Perens, Head of Swedbank Estonia.

In Q2 2013, GDP rose by 1.1 per cent in Estonia YoY. Growth slowed down due to weakening exports and investments. Household consumption is still strong, due to rising incomes and robust confidence levels.

Swedbank Estonia’s profit for Q2 2013 amounted to EUR 42.2m, against EUR 46.0m for the previous year. The decline was mainly due to lower net interest income.

Loans and deposits

Q2 lending volumes increased by 2.8 per cent YoY and by 0.5 per cent on Q1. The increase is mainly attributable to the corporate segment. The first signs of improvement in new household lending volumes were seen in Estonia in Q2 with the first growth in the private portfolio detected since Q3 2008. Swedbank’s market share in lending as of 31 May 2013 was 39.8 per cent (39.8 per cent - Q4 2012).

Q2 deposits increased by 3.3 per cent YoY and by 1.9 per cent on Q1. Both corporate and private deposits increased YoY. Swedbank’s Q2 market share for deposits was 45.2 per cent as of 31 May (44.9 per cent - Q4 2012). The loan-to-deposit ratio was 112 per cent, unchanged from Q4 2012.

Credit quality

Net recoveries amounted to EUR 4.1m in Q2 2013, up from EUR 2.8m YoY. Recoveries were generated in the corporate and retail portfolios. Impaired loans continued to decrease in Q2. Impaired loans, gross, amounted to EUR 209m (EUR 322m - Q2 2012). The decrease was due to amortisation, write-offs and loans starting to perform combined with a limited inflow of new impaired loans. Credit quality has strengthened through a gradual increase in new, lower risk lending.

H1 risk weighted assets decreased by EUR 178m to EUR 4432m, driven by the corporate portfolio. Risk weighted assets either stabilised or decreased in most lending portfolios due to an improved risk profile, where improved ratings and collateral had a positive effect.

Revenues and costs

YoY revenues decreased by 8 per cent in Q2. This decrease was mainly due to lower net interest income (lower base rates), which decreased by 12% compared to Q2 2012. Net commission income increased by 10 per cent YoY. The increase was primarily due to higher commissions from payment services deriving from increased customer activity and higher retail trade turnover. Higher fee income from fund management also contributed to net commission income growth. The number of active customers grew by 6000 YoY to nearly 799 000.

The cost/income ratio was 40 per cent (37 per cent - Q2 2012). In order to increase efficiencies, a new Baltic Banking operating model was set up and launched in 2013. The new model will improve collaboration across the Baltic region.

Customer focus

In Q2 Swedbank was named the most reputable company in Estonia for the sixth consecutive year. By Q2 nearly one fourth of the bank’s customers have used the benefits from Swedbank’s reward programme. Via the programme or as direct donations, more than 550 000 euros have been donated using Swedbank’s donation environment by the bank and its customers to organisations helping those in need.

On the 1st of June, Donation environment celebrated its fifth birthday with the biggest mosaic in Estonia, featuring the profile pictures of its Facebook fans. Customers’ continuously evolving demands for simpler and more easily accessible services have driven us to improve electronic channels, which in turn will bring in more business. In Q2 our one millionth internet bank customer signed up and mobile bank application downloads exceeded 100 000 in June. As of Q2 2013 nearly three times more payments are made using mobile than branches, up from 1:1 a year ago.