HANSAPANK

COMMENTARY TO FINANCIAL RESULTS



CONSOLIDATED UNAUDITED FINANCIAL RESULTS, 2000



Hansabank Group’s consolidated unaudited result for the year 2000  was

a  net profit of EEK 1.29 billion. As of December 31 the Group’s total

assets amounted to EEK 45.60 billion.



The  Group’s  consolidated  assets  grew  by  33.1%  during  the  year

totalling  EEK  45,595.5  million at the  end  of  December.  After  a

sluggish  start in the first quarter (EEK +0.44 billion),  the  growth

accelerated in the second and third quarter (respective growths of EEK

6.32  billion  and EEK 2.88 billion). The second quarter  figure  also

includes  two extraordinary items: acquisition of Ventspils  UBB  (EEK

+0.6  billion) and a Eurobond issue (EEK +2.3 billion). Of  the  total

growth of EEK 11.34 billion achieved during 2000, 83% originated  from

customer deposits.

Clients’  deposits  increased by EEK 9.44  billion  during  the  year,

amounting  to EEK 29.23 billion at the end of December. Of  the  total

growth 55% originated from Estonia, 23% from Latvia, 9% from Lithuania

and  13% from the acquisition of Ventspils UBB. While during the first

half  of  the  year demand and time deposits grew at a fairly  similar

pace  (29% vs. 28%), the growth shifted away from demand deposits  and

towards time deposits in the second half (7% vs. 32%).

The  volume  of foreign funding remained almost unchanged compared  to

the end of 1999, decreasing by EEK 4.7 million to EEK 6.92 billion  at

the  end  of  December 2000. At the same time there  were  significant

changes  in  the  item’s  internal  structure.  The  volume  of   debt

securities issued by the group increased by 136.1% to EEK 2.99 billion

as  a result of a EUR 150 million Eurobond issue in March. At the same

time  the  group  repaid several loans, including a  EEK  800  million

syndicated  loan  in  March and a EEK 400 million syndicated  loan  in

August, decreasing the amount of funding received from other banks  by

23.7% during 2000 to EEK 3.92 billion.



The  Group’s  shareholders’ equity increased  by  16.3%  to  EEK  5.76

billion  as of December 31. The shareholders’ equity was increased  by

the  EEK  1.29  billion net profit of the period. At  the  same  time,

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 17.0% (Tier I 16.0%).



After a quiet first quarter, lending has picked up a gear supported by

more active economic activity and new investment projects. Already  in

the second quarter loan growth increased substantially from the 4.8% 

level  achieved during the first three months to 10.2%; in  the  third

quarter loan growth rose to 10.6% and in the fourth quarter to  10.9%.

During  the  year the loan portfolio increased by 41.6% to  EEK  27.56

billion.  The  loan  to  deposit ratio decreased  from  98.4%  in  the

beginning  of the year to 94.3% at the end of December. The  drop  was

partially  caused  by the acquisition of Ventspils UBB,  its  loan  to

deposit  ratio was 35.8%. At the same time the share of net  loans  in

total  assets  increased from 54.9% in the beginning of  the  year  to

58.9% at the end of 2000.

At  the  end of the year the loan loss reserve formed 2.45%  of  total

loan  portfolio (3.32% in the beginning of the year). At the same time

the  volume of loans overdue more than 60 days (NPLs) amounted to  EEK

135.0 million, forming 0.49% of the Group’s loan portfolio.



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

banks and treasury securities) increased by 25.7% to EEK 12.77 billion

at the end of December, forming 28.0% of total assets.

As  a result of the acquisition of Ventspils UBB, the goodwill in  the

Group’s balance sheet increased by EEK 58.0 million. This amount  will

be amortised on a straight-line basis over 5 years.



Hansabank Group’s consolidated unaudited profit for the year  of  2000

was  EEK 1,285.2 million. The Group’s quarterly results were EEK 325.9

million  in  the  first, EEK 285.0 million in the  second,  EEK  323.0

million in the third and EEK 351.3 million in the fourth quarter.  The

fourth quarter result includes a EKE 56.4 million extraordinary income

from the out of court settlement with Hoiupanga Töötajate AS.

The  results of the five business units were the following:  Hansabank

Estonia  EEK  659.6 million, Hansabanka EEK 83.4 million,  Hansabankas

EEK  –34.4 million, Hansa Capital EEK 373.9 million, Hansabank Markets

EEK  239.4  million (Corporate banking was transferred under Hansabank

Markets  since March 2000. For the first two months of the  year,  its

results  are  recorded  under Hansabank Estonia)  and  other  (support

activities  not  directly  related to any  business  unit)  EEK  –36.7

million.  These  results are not comparable  to  the  results  of  the

respective  legal  entities  (AS  Hansapank  EEK  734.1  million,  a/s

Hansabanka EEK 145.1 million, AB bankas Hansabankas EEK –15.6  million

and AS Hansa Capital EEK 395.8 million.)



Interest  income  increased by 37.8% compared to 1999,  totalling  EEK

3.39 billion, at the same time interest expense increased by 42.7%  to

EEK  1.41 billion. As a result net interest income increased by  34.6%

to EEK 1.98 billion.

Loan  and  leasing  interest revenues form EEK 2.56 billion  of  total

interest  income.  Their volume increased by  24.6%  from  last  year,

falling  short  of  the  portfolio’s growth rate  (41.6%).  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 took

place  during the second half of the year. Interest income from  funds

placed  with  other  banks  grew by 87.8% to  EEK  307.1  million  and

interest  income  from  debt securities rose by  85.2%  to  EEK  321.5

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

0.82  billion. Of this EEK 94.7 million were payments to  the  Deposit

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

grown by 41.4%, compared to a 47.7% growth of deposits. Interest  paid

for  foreign  funding (loans and deposits from other  banks  and  debt

securities)  increased  by 23.7% compared to 1999,  amounting  to  EEK

440.0  million  in 2000. At the same time the volume  of  these  funds

decreased  by  1.8% mainly on the account of repayment of  two  larger

syndicated loans.

Compared  to  1999  the  average  yield  of  interest  earning  assets

decreased  by  24bp to 9.15%. At the same time the  cost  of  interest

bearing  liabilities  decreased by 9bp to  3.88%  whereby  the  spread

decreased  by 15bp to 5.26%. The Group’s net interest margin  remained

almost  unchanged,  rising  by  5bp  4.91%.  Despite  falling  lending

margins, NIM was supported by rising euro-rates and the recovered loan

growth.



Fees  and  commissions received during the year amounted to  EEK  1.09

billion,  exceeding previous year’s result by 39.8%. As  a  result  of

rapid  loan  growth in the second half of the year, fees from  issuing

loans,  leasing and guarantees regained their position as the  largest

fee source, amounting to EEK 309.9 million during the year (growth  of

72.9%).  The  rapid growth is a direct result of the  stagnating  loan

market  in  the  beginning of 1999. Fees from  leasing  and  factoring

recorded  a  particularly remarkable growth of  146.8%  to  EEK  139.0

million. Fees received from electronic channels increased by 36.6%  to

EEK  291.3  million  in 2000. By the end of December  2000  the  Group

already  had 187,000 Internet banking users in Estonia and  23,000  in

Latvia.

Fees and commissions paid increased by 13.6% to EEK 208.5 million. The

largest  growth rates on the expense side were recorded by  fees  paid

for  securities services, which increased by 47.4% to EEK 25.3 million

and  by  card services, which respectively grew by 28.4% to  EEK  68.7

million. Net service fees increased by 47.8% to EEK 0.88 billion.



Trading  income for the Group totalled EEK 0.56 billion in 2000,  down

by  6.2%  from last year’s result. The decrease resulted  from  a  EEK

112.0  million extraordinary revenue from the sale of subsidiaries  in

1999  and  a  67.2% decrease in income from derivatives  to  EEK  44.4

million.  At the same time income from foreign exchange has  increased

by 24.2% to EEK 349.6 million. Income from equity and bond trading and

investment portfolios amounted to EEK 92.4 million.



The  Group’s  total  revenues amounted to EEK 3.55  billion  in  2000,

exceeding  previous  year’s result by 25.1%. The revenue  distribution

for the period was the following: 55.7% net interest income, 24.7% net

fee  income, 15.9% trading income, and 3.7% other income. The  Group’s

quarterly  revenues  were EEK 0.77 billion  in  the  first,  EEK  0.82

billion  in  the second, EEK 0.94 billion in the third  and  EEK  1.02

billion in the fourth quarter.



Operating  expenses totalled EEK 1.90 billion for the year, increasing

from  previous year's level by 19.3%. Operating expenses  amounted  to

EEK  0.41  billion in the first quarter, to EEK 0.45  billion  in  the

second  quarter, to EEK 0.49 billion in the third quarter and  to  EEK

0.56 billion in the fourth quarter.

Of  total  expenses  37.5%  was formed by personnel  expenses  (annual

growth  of 23.7%), 21.4% by administrative expenses (annual growth  of

11.5%),  20.7% by other expenses (incl. goodwill amortisation) (annual

growth of 17.2%), 14.3% by depreciation (annual growth of 31.1%),  and

6.1%  by IT expenses (annual increase of 6.7%). The rapid increase  of

depreciation is mainly caused by the investments made in IT during the

merger  of Hansabank’s and Hoiupank’s information systems as  well  as

the Y2K project. The 23.7% growth in personnel expenses is driven by a

12.2%  increase in the number of personnel to 3,431. Majority  of  the

increase  originated  from Hansabanka, whose  workforce  rose  by  196

employees to 853. The faster pace of administrative expense growth  is

due  to  a  35.0%  rise in rent and a 27.6% increase in  communication

expenses.

The  19.3%  growth of expenses falls short of both, the 25.1%  revenue

growth  as  well  as  the  33.1%  asset  growth,  reflecting  improved

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

decreased to 47.8% and the ratio of operating expenses to total assets

decreased to 4.2%.



Loan  and  guarantee provisions increased by 0.8% from 1999, amounting

to  EEK 494.0 million during the year of 2000. Provisions totalled EEK

59.3  million  in the first quarter, EEK 120.9 million in  the  second

quarter, EEK 172.4 million in the third quarter and EEK 141.3  million

in  the  fourth quarter. Actual loan write-offs amounted to EEK  433.3

million and actual recoveries were EEK 129.2 million. The group’s  net

risk  cost  has  decreased from 2.79% in 1999 to 1.33%  in  2000.  The

group’s medium-term target is to lower the net risk cost to 0.8%.





Mart Tõevere

Head of Investor Relations

+372 6131 569