OREANDA-NEWS. May 14, 2014. Swedbank Estonia earned a net profit of EUR 39.4m for Q1 2014 compared with EUR 42.1m for Q1 2013. Despite higher net interest income, the decline was mainly due to the funding of a new dividend tax reserve fund.
 
„For more than a year now we have been operating in low interest rate environment that has put pressure on our earning capacity and forced us to focus on being more efficient. The changes we made to our organization last year have now started to pay off and as a result, we can be pleased with the results. Swedbank‘s Group‘s decision of 1st of April to start paying out about 60 per cent of profits earned in Estonia in dividends has substantial tax implications. Therefore, despite our increased profitability, our result is slightly down due to the necessary funding of a tax reserve fund.
 
Due to continuously changing customer behavior we aim at providing a wide variety of everyday banking services in electronic channels. At the same time advisory services are also expected in different and more convenient ways. Therefore our branches are increasingly aiming at providing advice and we are also gradually changing our contact centre into a consultation centre giving advice via phone as well as electronic remote channels – chatting online and Skype calls with the bank will be there for our customers in a not too distant future. 
 
Whilst the macroeconomic environment at the start of the year showed growth, recent events in Russia and Ukraine warrant a cautious view on development. Estonian economy has not been affected remarkably so far. The high diversification of our economy and flexibility of our businesses is key to our resilience under such circumstances,” – said Priit Perens, Head of Swedbank Estonia.
 
Loans and deposits
Q1 lending volumes decreased by 1.5 per cent compared to Q4 2013. The decrease is attributable to a slow down in new sales at the beginning of the year. Swedbank Estonia’s market share in lending was 39.0 per cent as of 31 March (39.5 per cent - Q4 2013). Deposits increased by 5.1 per cent YoY but were down by 1.3 per cent during the quarter after a seasonal peak in corporate deposits. Swedbank Estonia’s market share for deposits was 43.5 per cent as of 31 March (44.3 per cent - Q4 2013).

The loan-to-deposit ratio was 107 per cent (108 per cent - Q4 2013).
 
Credit quality
Net recoveries amounted to EUR 1m, compared with EUR 6.4m for Q1 2013. Impaired loans declined during the first quarter to EUR 148m (EUR 150m - Q4 2013). The credit quality in lending portfolios has improved to a level that impaired loans will continue to decrease in 2014 at slower pace. Risk weighted assets decreased by EUR 81m during the first quarter to EUR 3931m. Risk weights for small and medium size enterprises decreased significantly in Q1 as a result of regulatory changes in the framework of Basel III.
 
Revenues and costs
Net commission income increased by 5 per cent during Q1 2013, driven by higher returns from asset management. Customer activity and a new pricing model continue to support commission income. The number of active customers grew by 3000 YoY and now stands at 795 000. The cost/income ratio improved in the first quarter to 0.36 (0.43).
 
From 2014, Swedbank Group will introduce a dividend policy for its Baltic banking subsidiaries to equal 60% of profit. Dividends will be paid based on the profit generated from 1 January 2014. The first dividends according to the new dividend policy will be paid out in Q1 2015 but the expected corporate income tax charge in Estonia will be counted as starting from Q1 2014 as a deferred tax liability. In Q1, the deferred tax liability amounted to EUR 6m.
 
Customer focus and Swedbank brand
In Q1 the international business magazine Euromoney named Swedbank’s private banking the best in Estonia for the 2nd consecutive year.

From March Swedbank’s customers’ expiring debit cards can be replaced by post, sent free of charge to clients’ home addresses.

In order to raise service reliability and customer satisfaction at the same time preventing illegal card duplication, all Swedbank’s cash machines in Estonia are secured with anti-skimmer hardware from March. In addition, commencing in Q1, Swedbank has replaced 30 old cash deposit machines with new cash recycling terminals with additional cash withdrawal functionality.