AS HANSAPANK

ANNOUNCEMENT

27.04.99

 

 

FIRST QUARTER FINANCIAL RESULTS

 

 

Hansabank’s consolidated result for the first quarter of 1999 was a 

net profit of EEK 191.1 million. As of March 31 the Group’s total 

assets stood at EEK 28,839.8 million.

 

Hansabank’s consolidated total assets grew by 4.2% in the first 

quarter of 1999 totalling EEK 28.84 billion at the end of the 

period. The growth originated from the two main sources of funding – 

clients’ deposits and funds from other financial institutions. In 

one year the Group’s total assets have increased by 11.9% (pro-

forma).

Clients’ deposits increased by 4.7% during the first three months 

and stood at EEK 15.44 billion at the end of March. The growth was 

driven by demand deposits while the volume of term deposits actually 

decreased in the first quarter. Although during the first half of 

the quarter term deposits continued to grow being supported by high 

interest rates, the trend was reversed in March as interest rates 

were decreased significantly and for the full three months the 

volume of term deposits decreased by 1.1% to EEK 4.62 billion. At 

the same the volume of demand deposits increased by 7.4% to EEK 

10.82 billion. It is especially positive that deposit growth took 

place both, in Estonia as well as in Latvia. As of March 31 

Hansabank’s market share by total deposits was 54.6% in Estonia 

(69.9% for retail deposits) and 12.8% in Latvia. In one year the 

group’s deposits have increased by 21.9% (pro-forma).

In January Hansabank received the second half (DEM 75 million) of 

the syndicated loan signed in December 1998. Total funds received 

from other financial institutions increased by 16.9% to EEK 4.75 

billion in the first quarter. However over one year their volume has 

decreased by 14.1% (pro-forma).

The third largest source of funding –debt securities issued to the 

public – decreased by 22.1% in the first quarter to EEK 1.6 billion. 

The decrease mostly came from Hansa Capital’s bonds. Decrease over 

one year now stands at 30.5% (pro-forma).

The total liability growth for the first three months came to 4.1% 

and their volume stood at EEK 23.99 billion at the end of March. 12-

month growth was 5.7% (pro-forma).

During the first quarter total shareholders’ equity increased mainly 

on the account of the net profit of the period and stood at EEK 4.39 

billion as of March 31. At the end of the period the group’s total 

capital adequacy was 18.73% (Tier I 16.57%) and for the bank it 

stood at 19.84% (Tier I 17.57%).

 

On the asset side the loan portfolio decrease slightly over the 

first three months of the year. The decrease came from the 

commercial banks’ portfolios - 1.0% in Estonia and 1.1% in Latvia. 

The Group’s loan portfolio decreased by 1.6% to EEK 16.52 billion 

during the first quarter. During the last 12 months total loans have 

grown by 13.8% (pro-forma). During 1998 the fallout of the Eastern 

export market due to the Russian financial crisis, high positive 

real interest rates and 

the downturn in the local economic environment has clearly reduced 

business confidence and consequently also had a negative effect on 

credit demand. However, following the stabilisation of the economic 

environment and the reduction in the general interest rate level 

during the opening months of the year Hansabank has reduced its EEK 

prime lending rate to 12.5%. We have also witnessed a slight pickup 

in economic activity and the emergence of new projects which already 

in March reflected in the stabilisation of the loan portfolio’s 

volume and allowing to predict also a slight increase for the coming 

periods. As of March 31 Hansabank’s market share by total loans was 

51% in Estonia and 8,5% in Latvia. At the end of March the loan loss 

reserve formed 4.52% of the total loan portfolio, which we consider 

adequate. As a result of a decrease in loan portfolio and an 

increase in deposits, the loan to deposit ratio decreased from 

113.9% in the beginning of the year to 107.0% at the end of March 

(114.6% one year ago).

Through these trends the share of liquid assets has increased 

significantly. Deposits and loans to other banks increased by 62.6% 

to EEK 4.31 billion and treasury securities increased by 55.6% to 

EEK 2.27 billion in the first quarter. At the same time funds in the 

central bank decreased by 53.1% to EEK 1.12 billion. Since 

commercial banks have to fulfil the 13% compulsory reserve 

requirement on a monthly average, the month-end balances of this 

item are quite volatile. All-in-all the group’s liquid assets 

increased by EEK 1.1 billion in the first quarter.

The repo-portfolio stood at EEK 276.2 million at the end of March, 

of which over half was formed by transactions with other credit 

institutions. The portfolio increased by 120.3% or EEK 150.8 million 

during the three-month period.

Group’s tangible assets totalled EEK 941.0 million as of March 31, 

which is 0.6% less than in the beginning of the year and 12.6% (pro-

forma) less than one year ago.

 

Hansabank’s consolidated profit for the first quarter of 1999 was 

EEK 191.1 million, which exceeds the result of the previous year’s 

corresponding period by 50.7% (pro-forma). The results of the 

principle business lines were the following: banking in Estonia EEK 

121.9 million, banking in Latvia EEK 3.4 million, leasing and 

factoring EEK 65.3 million and life and p&c insurance EEK 2.4 

million.

Interest income increased by 1.5% (pro-forma) over 12 months 

totalling EEK 584.4 million for the first quarter of 1999. At the 

same time interest expense decreased by 9.4% (pro-forma) to EEK 

230.5 million. As a result net interest income increased by 10.1% to 

EEK 353.9 million. The very modest growth in interest income is 

caused by the already mentioned increasing share of liquid and low 

risk assets in total assets. Compared to 1998 the average yield of 

interest earning assets decreased by 75bp to 10.35%. At the same 

time the cost of interest bearing liabilities decreased only by 35bp 

to 4.20% whereby the spread narrowed by 40bp to 6.15%. When compared 

to the first quarter of 1998, the spread has decreased by 50bp (pro-

forma). The Group’s net interest margin on the other hand increased 

in the first quarter by 8bp to 5.02%. Compared to the respective 

period of 1998 this ratio has decreased by 12bp (pro-forma).

 

Loan and guarantee provisions have increased by three times if 

compared to the pro-forma figure of the first quarter of 1998 to EEK 

121.2 million. Actual loan losses amounted to EEK 133.7 million. 

However, of this amount EEK 76 million was already fully provisioned 

in December and written off only in January.

Trading income for the Group totalled EEK 168.6 million over the 

first three months. Of this over half, ie. EEK 85.2 million was 

earned from off-balance sheet items (swaps, forwards and options). 

EEK 42.5 million came from currency exchange and EEK 35.4 million 

from securities.

Fees and commissions received in the first quarter amounted to EEK 

171.4 million, exceeding previous year’s corresponding pro-forma 

figure by 25.5%. Of the total fees 26.8% was earned from electronic 

services, 20.6% from transfers and 10.4% from cash services. Due to 

the slow-down in the credit portfolio growth the share of loan and 

leasing fees has decreased to 18.1%, while the corresponding figure 

for the full 1998 was 24.4%.

The Group’s total revenues amounted to EEK 647.6 million in the 

first quarter, exceeding the result of last year’s corresponding 

period by 22.3% (pro-forma). The revenue distribution for the first 

quarter of 1999 was the following: 38.2% net interest income after 

provisions, 26.5% fee income, 26.0% trading income and 9.3% other 

income.

 

Operating expenses (incl. depreciation and goodwill amortisation) 

totalled EEK 433.5 million in the first quarter, exceeding previous 

year's corresponding figure by 22.0% (pro-forma). At the same time 

if we exclude goodwill amortisation, operating expense growth was 

just 6.7%, which is notably less than the revenue growth.

Service fees paid by the group amounted to EEK 42.5 million for the 

first quarter of the year, a growth of 22.1% (pro-forma) if compared 

to last year’s first quarter. The growth stems from the growing 

volume of electronic banking services (incl. bank cards) used by our 

clients. In the first quarter fees paid for card services formed 

already 21.2% (EEK 9.0 million) of total fees paid.

Personnel expense, which in the first quarter formed one third of 

total expenses amounted to EEK 141.3 million. If compared to the 

first quarter of 1998 personnel expense has increased by 5.8% (pro-

forma). The average number of employees in the first quarter was 

3,766.

Administrative expenses amounted to EEK 102.0 million in the first 

quarter and IT expenses to EEK 22.9 million. Over one year these 

items have grown (pro-forma) by 5.4% and 7.0%, respectively. Other 

expenses, which totalled EEK 74.9 million in the first quarter, also 

include goodwill amortisation in the amount of EEK 54.4 million. 

Excluding this extraordinary non-cash item, other expenses have 

decreased by 33.0% (pro-forma) over the year.

Depreciation expense amounted to EEK 49.9 million for the first 

three months, exceeding last year’s figure for the same period by 

32.7% (pro-forma). The rapid increase is mainly caused by the 

additional IT investments necessary to cover the increased business 

volumes and client base as a result of the merger.

 

 

During the post-merger process Hansabank has undergone a thorough 

cost cutting exercise. During that period the number of branch 

offices has been cut by 20% to 154 and the number of employees has 

decreased by 15% to 3,788. The cost-income ratio for the first 

quarter was 58.5% (66.9% with goodwill amortisation), compared to 

67.0% (pro-forma) for the first quarter of 1998 and the cost to 

average asset ratio has decreased to 5.4% (6.14% incl. goodwill 

amortisation).

 

 

 

AS HANSAPANK

 

 

 

Mart Toevere

Analyst

Tel. +372 6131 569