EESTI ÜHISPANK

ANNOUNCEMENT

18.01.99

 

Comments on Eesti Ühispank financial results in December, 1998

 

As at  the end  of December,  the total  size of  the balance sheet of

Eesti Ühispank amounted  to EEK 13.6  Billion and the  un-audited loss

for the year to  EEK 290 Million (profit  for 1997: EEK 211  Million).

The loss per share  was EEK 6.6 in  1998, compared to EEK  7.44 profit

per share in 1997.  Excluding the losses incurred from the decline  on

stock  markets  and  loan  losses  due  to the changes in the economic

situation  (totalling  502.7  million  EEK),  the  bank's  results are

comparable to the  1997 results. The  capital adequacy ratio  of Eesti

Ühispank  was  13.85%  as  of  end  of  the  year. The above mentioned

results are  on non-  consolidated basis  and are  in accordance  with

IAS.

 

The  financial   results  of   Eesti  Ühispank   in  1998   were  most

significantly affected by the  emerging market crisis, especially  the

deterioration  of  the  situation  in  Russia  during the summer which

heavily  influenced  the  markets  in  the whole region, including the

Baltics.   The bankruptcies  of smaller  banks and  the enforcement of

the  Russian  debt   moratoriums  had  a  significant influence on the

banking  sector  in  Estonia  in  1998.   Due  to this, Eesti Ühispank

suffered  significant  losses  in  the  equity and fixed income market

(excluding the bank's subsidiaries) in the amount of EEK 225 Million.

 

The  crisis,  together  withthe  Government's  tightening  of monetary

policy  throughout  the  year  negatively  affected  the  bank's  loan

portfolio  as  the  economic  environment  in  Estonia   deteriorated.

Therefore the bank  decided, on the  grounds of prudence,  to increase

provisioning levels. Losses from revaluation of loans amounted to  EEK

267.6  Million  in  1998,  compared  to  EEK  74.5 million in 1997, an

increase of  over 260%.   Loan provisions  accounted for  4.3% of  the

total loan portfolio by the  year-end (2.3% in 1997). Loan  provisions

amounted 197% of unsecured non-performing loans as at the end of  1998

(122% at the end of 1997).

 

During 1998, the  net interest income  amounted to EEK  468 Million or

76%  of  Eesti  Ühispank's  total  banking  income (EEK 314 Million in

1997).   Net commissions  (EEK 127.7  million) and  other income  (EEK

18.9   Million)  constituted 21%  and 3%  respectively.   In 1997, net

interest income formed 52.4% of the bank's total income. The share  of

interest  income  in  the  structure  of  total  banking  income   has

increased due to the fact there were no securities trading profits  in

1998.

 

Operating expenses amounted  to EEK 488  Million in 1998,  an increase

of  almost  50%  compared  to  the  previous  year (EEK 334 Million in

1997).   The  increase  is  in  part  attributable  to the merger with

Tallinna Pank and  the costs of  integration process. The  goal of the

bank is to ensure that the costs of the merged entity are kept at  the

same level of Eesti Ühispank's before the merger.

 

During 1998 Eesti Ühispank's total  assets increased by 44% or  by EEK

4.1 Billion.  In terms of assets, Eesti Ühispank's share in the  total

Estonian banking  market increased  to 33.4%  at the  end of November,

having increased by 10.1% since  the beginning of the the  year (23.3%

on  31.12.1997).   Approximately   one  third  of   the   growth   was

internally generated,  the remainder  being the  result of  the merger

with Tallina Pank.

 

Net loans and advances to  customers increased from EEK 4,947  Million

at the end  of 1997 to  EEK 7,432 Million  at the end  of 1998.  These

represented 54.6%  of the  total assets  by the  end of  December 1998

(EEK 52.3% at the end of 1997)

 

Shareholder's  equity  increased  from   EEK  674.2  Million  at   the

beginning of the year  to EEK 2,010.2 Million EEK at the end of  1998.

The bank executed  two capital increases  during the year,  one in the

form of  a GDR  issue in  the spring  and the  second as  part of  the

strategic partnership with SEB in November.

 

December results

 

December balance sheet  increased by EEK  77 Million and  the loss for

the month amounted to EEK 151 Million.

 

The  major  changes  in  the  balance  sheet relate to the receipts of

money from  the share  issue in  connection to  the strategic alliance

with SEB.  In line with the bank's strategy, the funds from the  share

issue are kept as liquid assets  of the bank.  During December,  "Cash

and due from  other banks" grew  by EEK 0.4  Billion or 2.9%.   At the

same time, the bank's loan  portfolio decreased by EEK 0.3  Billion or

3.5%. On  the investments  side, investments  into bonds  decreased by

EEK 0.1 Billion. There are currently no pending securities  repurchase

agreements   with   clients.  Also,  the   long-term  investment   and

securities trading portfolio of  the bank were reduced  substantially.

Investments   into   subsidiaries   grew   due   to   purchasing   the

participation of Hüvitusfond (Compensation  Fund) in AS Tornimäe  (the

company managing  the construction  of the  new head  office of  Eesti

Ühispank) as well as taking over their loan to the company. Also,  the

goodwill was increased by EEK 163  million as a result of merging  the

companies of Tallinna  Pank Group with  relevant Eesti Ühispank  Group

companies.

 

On  the  liabilities  side,  the  bank's liabilities to state agencies

decreased by EEK 0.4 Billion.  The decrease was caused by  utilisation

of free funds by the state  treasury, as well as receipts of  revenues

of the state budget. The  deposits of state entities formed  less than

10% of total clients'  deposits as at the  end of December (22%  as at

the end of the year 1997).  At the same time, the balance of  deposits

by  private  individuals   grew  by  EEK  0.1  Billion  (5.8%)  during

December; that of corporate deposits - by EEK 0.2 Billion (5.3%).  The

amount of  bonds issued  by Eesti  Ühispank decreased  from EEK 2.1 to

EEK 1.9 Billion due to prepayment  of the bonds as well as  changes in

the US Dollar exchange rate.

 

The increase of the loss of Eesti Ühispank during December was  caused

mainly by  a more  conservative approach  to the  valuation of  assets

because of  the present  economic situation  in Estonia.  In December,

the same  approach was  adopted by  the entire  Eesti Ühispank  Group.

Accordingly, the bank's  investments were downgraded,  possible losses

were written down, loan and  bond losses were provisioned and  written

off.

 

For further information, please contact:

 

Margus Schults, Vice President

Ülo Suurkask, Vice President

Eesti Ühispank

Phone: (372) 6 110 600

Fax: (372) 6 110 602