EESTI ÜHISPANK

ANNOUNCEMENT

05.03.99

 

 

COMMENTS ON EESTI UHISPANK AUDITED CONSOLIDATED 

FINANCIAL RESULTS FOR 1998

 

The  consolidated  audited  loss  of  AS  Eesti Ühispank Group for the

financial year  1998 was  EEK 383.4  million. During  1997, the  Group

made  EEK  211.2  million  profit.  The  main  reasons  for the losses

carried in 1998 were the  financial crisis of the emerging  markets of

South -  East Asia  which started  during the  second half  of 1997 as

well as the collapse of the Russian economic and financial systems  in

August last year.   The decline by almost  five times of the  index of

Tallinn  Stock  Exchange  TALSE  and  the  decrease  in  stock  market

liquidity  was  primarily  caused  by  the  external  factors.   Thus,

Ühispank  Group  carried  EEK  320  million  loss from the trading and

investment portfolios in 1998.

 

Due  to  the  stock  market  crash  and  as a result of the outflow of

short-term  portfolio  investments,  a  significant  rise  in interest

rates occurred at  the end of  1997.  Increased  mandatory reserve and

extra liquidity requirements, imposed by the Central Bank of  Estonia,

further  tightened  the  market  conditions.   The interest rates that

increased  twice  as  a  result  of  the Russian crisis, significantly

deteriorated  the  financial  conditions  of  the Estonian enterprises

doing  business  in  the  Russian  markets.   Food  industry  was most

affected. As a  result, the whole  population's income and  employment

levels were affected,  which in turn  had an impact  on the growth  of

deposits and quality of the loan  portfolio of the Group.  The  bank's

loan  provisions  increased  due  to  the  changes  in  the   economic

environment.   Ühispank  Group  loan  provisions  amounted to EEK 95.3

million in 1997 (incl. EEK 23.5 million general provisions),  however,

in  1998,  loan  provisions  expense  increased  3.6  times to EEK 345

million (incl. EEK 209 million general provisions).

 

Ühispank  Group  balance  sheet  amounted  to  EEK  16,5 billion as at

31.12.1998 (EEK 10,3 billion  at the end of  1997).  The main  part of

the growth was due to the merger with Tallinna Pank.  Inflow of  cheap

money in 1996 and 1997 caused  the doubling of loan portfolios of  the

Estonian commercial banks.  The  arrangement of the banking market  in

1998  brought  along  refinement  of  the  banks'  balance sheets upon

merges,  due  to  which  also  the  value of Tallinna Pank Group's net

assets turned negative.  The  goodwill of Tallinna Pank has  increased

to EEK 576  million (in acquisition  cost) during the  merger process.

The goodwill is planned  to be written off  over ten years.   That has

accelerated  pressures  on  Ühispank's  operating  costs  in  terms of

goodwill depreciation that totalled to EEK 24 million in 1998.   Total

operating costs of Eesti Ühispank  Group were EEK 622 million  in 1998

compared to EEK 342 million in 1997.  The increase of operating  costs

by 80 per cent is due to the merger with Tallinna Pank group.  By  the

pro forma accounting, the operating costs increased by 7.0 per cent.

 

Deposits of Eesti  Ühispank Group increased  almost by 50  per cent to

EEK 8.2 million in 1998.

 

The growth  of demand  deposits retarded,  whereas the  amount of time

deposits  increased,  due  to  which  the  price of funding increased.

Interest  rates  of  time  deposit  were significantly affected by the

speculations  against  the  Estonian  kroon  and shrinkage of Estonian

money market during the second half  of 1998, as aresult of which  the

net interest  income of  EEK 650  million earned  by Ühispank's  Group

turned out to be EEK 100 million less than expected.

 

The owners' equity of  Ühispank grew as a  result of the GDR  issue in

March 1998 (arranged by  Bankers Trust Company: 11.159  million shares

at price of EEK  63.5 kroon per share)  as well as the  directed share

issue to SEB (Skandinaviska  Enskilda Banken) in November  - December,

with 15 million  new shares issued  at EEK 40  kroon per share.   As a

result, SEB has acquired a 34 per cent ownership of Eesti Ühispank.

 

Due to the  losses in the  stock market, Eesti  Ühispank has decreased

its  investments  into  equities  trading  portfolio  almost  12 times

during 1998. Also, making  the repo deals has  been  terminated.   The

net loan portfolio of  the Group increased by  two- thirds or EEK  4,1

billion  over  the  year  (the  pro  forma  growth was 16.2 per cent),

amounting  to  EEK  10,3  billion  at  the  end  of 1998. The net loan

portfolio accounted for   62.4 per cent of  total assets.  Due  to the

substantial increase  of loan  provisions, the  provisioning level  is

curently 4.0 per cent of  the total loan portfolio.

 

 

 

The financial results of companies in the group:

 

Eesti Ühispank Group:                        EEK -383.4 million

incl.                        

Saules Banka                                 EEK  -39.2 million

 

Leasing companies                            EEK   -3.9 million

incl.Ühisliising                             EEK   +8.1 million

 

Asset Management

(TP Asset Management, Ühispanga Fondijuht)   EEK   -4.5 million

 

Broker companies

(Latvia, Lithuania, Russia)                  EEK   -3.7 million

 

 

 

Additional info:

Ülo Suurkask

Vice President

Eesti Ühispank

Tel. +372 6 110 350