OREANDA-NEWS. July 29, 2014. “Swedbank’s Q2 results are solid. Despite some negative real GDP-growth we are seeing economic activity levels similar to last year for both corporates and private customers.

Retail customer interest has risen primarily in the field of consumer financing, but mortgages are also on an upward curve. Corporate interest in financing has grown as well. We have seen quite rapid wage growth over the past 12 months, which is, in turn, accelerating internal consumption. However, as welcome as the wage growth is for the households, long term wage pressure could bring competitiveness and productivity issues for enterprises to the fore.

Exports are the best possible long-term growth engine for Estonia, thus the willingness of industry to invest despite wage pressure is a very positive trend. ” – said Priit Perens, Head of Swedbank in Estonia.
 
Swedbank Estonia’s profit for H1 2014 amounted to EUR 80.3m against EUR 84.1m for the same period in 2013. The decline was mainly due to building up income tax reserves and a slow down in the rate of recoveries this year. Events in Russia and Ukraine have had no real impact on results.
 
Loans and deposits
H1 2014 lending volumes in Estonia remained unchanged YoY. This was mainly due to a slow down in new corporate sales at the beginning of the year while both private and corporate financing portfolios grew in Q2. The loan portfolio in Estonia amounted to EUR 6076m at the end of Q2 2014.
 
Total H1 2014 deposit volumes increased by 5 per cent YoY with both corporate and private deposits showing growth. The deposit portfolio amounted to EUR 5714m at the end of Q2 2014. The loan-to-deposit ratio decreased to 106.3 per cent (111.7 per cent – Q2 2013).
 
Credit quality
H1 2014 net recoveries amounted to EUR 3.8m (EUR 10.5m - H1 2013). Impaired loans continued to decrease in the first half of 2014 in Estonia and amounted to EUR 142m at the end of Q2 (EUR 209m - of Q2 2013). Credit quality has improved to such a level that the decrease in impaired loans has been quite moderate in 2014 compared to the last two years.
 
Revenues and costs
Swedbank Estonia’s total income for H1 2014 reached EUR 142.5m – up 13 per cent YoY.
 
Net interest income rose by 18 per cent YoY. Increased deposit volumes and higher Euribor rates affected net interest income positively. Total net interest income in H1 2014 amounted to EUR 91.3m.
 
Net commission income increased by 5 per cent YoY to EUR 34.2m in total at the end of H1 2014. The increase was mainly due to increased customer activity.
 
Starting this year Swedbank has adopted a new policy on profit distributions from its Baltic operations. Henceforth, around 60 per cent of earnings generated by the Baltic subsidiaries will be distributed to the parent company, Swedbank AB. Profit in Estonia is not taxed until its distribution, which means that deferred tax is recognised on the distribution from Estonia now, even though it will not be paid until the first quarter 2015. For the first six months of 2014, deferred tax amounting to EUR 11.8m has been recognised on future distributions. In addition our daughter companies in Estonia, Swedbank P&C Insurance AS and Swedbank Life paid EUR 4,6m in income tax in Q2 due to paying dividends to Swedbank AS.
 
H1 2014 expenses fell 0.6 per cent (EUR 0.3m) YoY, down to EUR 52.0m. This was mainly due to lower expenses incurred by staff and premises. The cost/income ratio stood at 36.5 per cent (41.7 per cent in H1 2013).
 
Customer focus
 
During the second quarter, reputation survey results were released in Estonia by TNS EMOR. Swedbank Estonia ranked as the first among financial institutions and second in the overall ranking.
 
Also, according to an employers’ reputation survey conducted in April, Swedbank belongs to the top preferred organizations among young people entering the job market. In general employer rankings by employees, Swedbank is in 13th place, but remains first among financial institutions.