HANSAPANK

COMMENTARY TO FINANCIAL RESULTS



SEMIANNUAL 2000 CONSOLIDATED FINANCIAL RESULTS



Hansabank’s consolidated unaudited result for the first half  of  2000

was a net profit of EEK 610.9 million. As of June 30 the Group’s total

assets amounted to EEK 41.01 billion.



Hansabank’s consolidated assets grew by 19.7% during the first half of

2000  totalling  EEK 41,014.7 million at the end of June.  The  growth

originated  from  clients’ deposits and the EUR 150 million  euro-bond

issue.  The  acquisition  of  Ventspils UBB  was  finalised  in  June,

boosting Hansabanka’s total assets by additional EEK 0.59 billion.

Clients’  deposits  increased by a record-breaking  EEK  5.69  billion

during  the first half of 2000, amounting to EEK 25.48 billion at  the

end  of  June.  Of the total growth 45% originated from  the  Estonian

market, 27% from the Latvian market, 6% from the Lithuanian market and

22% from the acquisition of Ventspils UBB.

In  the  beginning  of  April Hansabank launched  a  EUR  150  million

Eurobond  issue under its EMTN programme. As a result  the  amount  of

debt  securities  issued to the public increased by EEK  1.57  billion

during the first half of the year to EEK 2.84 billion.

Total  liabilities increased by 22.7% during the first  half  of  2000

amounting to EEK 35.36 billion at the end of June.



During the first half of 2000 total shareholders’ equity increased  by

4.2% to EEK 5.16 billion as of June 30. While during the first quarter

shareholders’  equity  increased by EEK 0.36  billion  mainly  on  the

account  of  the net profit, then in the second quarter  shareholders’

equity  decreased  by  EEK 0.15 billion as a result  of  the  dividend

payment.  According to the decision of the AGM, on  May  10  Hansabank

paid every shareholder a dividend of 5 kroons per share, all totalling

to  EEK 393.8 million. Additionally Hansabank had to pay a tax of  EEK

84.8  million on profit distribution. These amounts were deducted from

retained   earnings   of   previous  periods   thus   decreasing   the

shareholders’  equity.  At  the end of the period  the  group’s  total

capital adequacy was 15.25% (Tier I 13.73%) and for the bank it  stood

at  13.73%  (Tier  I 12.05%). Together with the unaudited  profit  the

Group’s adequacy ratios would stand at 17.34% and 15.97% (Tier I).



Besides  deposit growth, some improvement in the economic  climate  is

also  hinted  by the recovery in lending activities –compared  to  the

first quarter of 2000 loan growth more than doubled to EEK 2.1 billion

in  the  second  quarter. During the first half of the year  the  loan

portfolio  increased  by  15.4% to EEK 22.46  billion  (annual  growth

33.5%). At the end of June the loan loss reserve formed 3.03% of total

loan  portfolio  (3.32% in the beginning of the  year).  The  loan  to

deposit  ratio decreased from 98.4% in the beginning of  the  year  to

88.2% at the end of June. The sudden drop was partially caused by the

                                                                  2(5)

acquisition of Ventspils UBB, its loan to deposit ratio was 35.8%.

The  volume  of liquid assets (cash and cash reserve, dues from  other

banks and treasury securities) increased by 28.4% to EEK 12.89 billion

at  the  end  of  June, forming 31.4% of total assets.  The  net  loan

portfolio’s share in total assets was 53.1% (54.9% in the beginning of

the year).



Hansabank’s consolidated unaudited profit for first half of  2000  was

EEK 610.9 million. The Group’s net result was EEK 325.9 million in the

first quarter and EEK 285.0 million in the second quarter. The results

of the principal business lines were the following: banking in Estonia

EEK 352.8 million, leasing and factoring EEK 196.6 million, banking in

Latvia  EEK  69.0  million, asset management  EEK  6.0  million,  life

insurance EEK 2.7 million and banking in Lithuania EEK –10.2  million.

In addition to the mentioned business lines, consolidated results also

include eliminations.



Interest income increased by 28.0% compared to the first half of 1999,

totalling  EEK  1.49  billion,  at  the  same  time  interest  expense

increased  by  26.8%  to EEK 0.61 billion. As a  result  net  interest

income increased by 28.8% to EEK 0.88 billion.

Loan  and  leasing  interest revenues form EEK 1.15 billion  of  total

interest income. Their volume increased by 13.4% from last year’s same

period,  falling  significantly short of the portfolio’s  growth  rate

(33.5%).  The  large difference is caused on the one hand  by  falling

interest rates and on the other hand by the fact that the rapid growth

of the portfolio has taken place over the last few months. The fastest

growing  items  among interest income are still those related  to  the

liquidity  portfolio:  interest income from funds  placed  with  other

banks  (growth of 79.6% to EEK 120.9 million) and interest  from  debt

securities (growth of 114.6% to EEK 143.3 million). For both items the

most  important growth drivers were higher euro-interest rates and  an

increase in the level of liquid assets.



Under  interest  expense the cost of client deposits amounted  to  EEK

0.34  billion. Of this EEK 42.7 million were payments to  the  Deposit

Guarantee Fund. During one year interest expense on deposits has grown

by  15.8%, compared to a 50.7% growth of deposits. Interest  paid  for

foreign  funding  (loans  and  deposits  from  other  banks  and  debt

securities) increased by 15.9% compared to the first half of 1999,  to

EEK  208.1  million.  At  the  same time the  volume  of  these  funds

increased  by  18.6%  mainly on the account of  the  EUR  150  million

Eurobond issue.

Compared  to  1999  the  average  yield  of  interest  earning  assets

decreased  by  61bp to 9.32%. At the same time the  cost  of  interest

bearing  liabilities  decreased by 50bp to 4.14%  whereby  the  spread

decreased  by 11bp to 5.17%. The Group’s net interest margin decreased

by 2bp to 4.84% during the first half.





                                                                  3(5)

Fees  and commissions received during the first six months of the year

amounted  to  EEK 0.50 million, exceeding previous year’s same  period

result by 35.1%. Besides being the fastest growing revenue item, it is

also  positive  that the growth was achieved evenly  across  all  sub-

items. All major fee items recorded a growth over 20%. As a result  of

rapid  loan  growth in the last few months, fees from  issuing  loans,

leasing  and  guarantees regained their position as  the  largest  fee

source,  amounting to EEK 133.5 million during the first half  of  the

year  (growth  of 87.2%). The rapid growth is a direct result  of  the

stagnating  loan market in the beginning of 1999. Fees  received  from

services offered through electronic channels increased by 32.9% to EEK

130.3  million  in  the  first half of 2000. In  June  2000  Hansabank

already had 136,000 Internet banking customers.

Fees  and  commissions paid increased by 24.2% to EEK  105.9  million,

falling  short  of the growth rate of fee income. The  largest  growth

rates  on  the expense side were recorded by fees paid for  securities

services,  which increased by 192.9% to EEK 20.6 million and  by  card

services,  which respectively grew by 44.7% to EEK 30.8  million.  Net

service fees increased by 38.4% compared to the first half of 1999  to

EEK 0.39 billion.



Trading  income for the Group totalled EEK 0.25 billion for the  first

half  of 2000, down by 13.5% from last year’s same period. Income from

derivatives,  which in the first quarter of 1999 was at  a  very  high

level, decreased by 61.9% to EEK 41.7 million. At the same time income

from  foreign  exchange has increased by 42.2% to EEK  169.5  million.

Income from equity and bond trading and investment portfolios amounted

to EEK 44.4 million.



In  the first half of 2000 the Group’s total revenues amounted to  EEK

1.59  billion, exceeding last year’s first half result by  13.6%.  The

revenue  distribution  for  the period was the  following:  55.7%  net

interest income, 24.8% net fee income, 15.9% trading income, and  3.6%

other  income. The Group’s total revenues amounted to EEK 0.77 billion

in the first quarter and to EEK 0.82 billion in the second quarter.



Operating expenses totalled EEK 0.85 billion for the first six  months

of  this  year, increasing from previous year's first half  result  by

10.4%.  In the first quarter operating expenses amounted to  EEK  0.41

billion and in the second quarter they amounted to EEK 0.45 billion.

Of  total  expenses  37.2%  was formed by personnel  expenses  (annual

growth  of 12.1%), 21.5% by administrative expenses (annual growth  of

4.0%),  20.5% by other expenses (incl. goodwill amortisation)  (annual

growth  of 9.8%), 14.9% by depreciation (annual growth of 28.3%),  and

5.9%  by IT expenses (annual decrease of 8.2%). The rapid increase  of

depreciation is caused by the completion of the renovation of the head-

office and the investments made in IT during the merger of Hansabank’s

and Hoiupank’s information systems as well as the Y2K project.



                                                                  4(5)

The  10.4%  growth of expenses fell short of both, the  13.6%  revenue

growth  as  well  as  the  32.9%  asset  growth,  reflecting  improved

efficiency.  The  Group’s  cost-income ratio (before  provisions)  was

47.5% in the first half (after net provisions 55.5%) and the ratio  of

operating expenses to total assets has decreased to 4.13%.



Loan  and guarantee provisions decreased by 34.5% from the first  half

of  1999, amounting to EEK 180.3 million during the first six  months.

At  the same time comparing the two quarters of 2000, provisions  were

up  by  103.7% or EEK 61.6 million in the second quarter. Actual  loan

losses  amounted to EEK 122.9 million and actual recoveries  were  EEK

53.0 million.



The  extraordinary income of EEK 22.3 million came from Hansa  Capital

as  they regained the pre-paid income tax that was expensed by them in

1999.





Mart Tõevere

Investor relations

+372 6131 569