HANSABANK

ANNOUNCEMENT

20.10.99

 

 

9-MONTH CONSOLIDATED FINANCIAL RESULTS

 

 

Hansabank’s consolidated result for the first nine months of 1999 was a net profit of 

EEK 574.6 million. As of September 30 the Group’s total assets amounted to EEK 31.05 

billion. 

 

Hansabank’s consolidated total assets grew by 12.1% during the nine-month period 

totalling EEK 31.05 billion at the end of September. 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 15.4%.

Clients’ deposits increased by 19.4% during the nine months and amounted to EEK 17.60 

billion at the end of September. The growth was driven by demand deposits, which 

increased by EEK 2.37 billion over the three quarters totalling EEK 12.45 billion at 

the end of the period. The significant reduction in interest rates in February-March 

reduced the attractiveness of long-term saving, whereby the volume of term deposits 

actually decreased by EEK 0.16 billion over the first 6 months of the year. However, 

supported by the continuing stabilisation of the economic environment and decrease in 

the rate of inflation, term deposit growth resumed in the third quarter and for the 

full three quarters their volume increased by EEK 0.49 billion to EEK 5.16 billion at 

the end of September. In one year the group’s deposits have increased by 27.2%. As of 

September 30 Hansabank’s market share by total deposits was 56.5% in Estonia (70.0% 

for retail deposits).

Total funds received from other financial institutions increased by 20.8% during nine 

months to EEK 4.90 billion. In January Hansabank received the second half (DEM 75 

million) of a syndicated loan signed in December 1998, and in June Hansa Capital 

received the first tranche (EUR 30 mio) of the EUR 40 million syndicated loan. Over 

one year this item has decreased by 4.6%.

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

decreased by 35.0% over three quarters to EEK 1.33 billion. Decrease over one year 

now stands at 42.4%.

The growth of total liabilities for the first nine months came to 12.1% and their 

volume stood at EEK 25.83 billion at the end of September. 12-month growth was 9.6%.

During the nine months total shareholders’ equity increased mainly on the account of 

net profit and amounted to EEK 4.75 billion as of September 30. At the end of the 

period the group’s total capital adequacy was 18.60% (Tier I 16.56%).

 

The Group’s total loans increased by 6.9% to EEK 17.94 billion during the first nine 

months. Although in the first quarter of the year the loan portfolio decreased (-

1.6%) and for the first half of the year growth reached only 0.2%, the third quarter 

witnessed a notable pickup in credit demand and quarterly loan growth exceeded EEK 1 

billion. During the last 12 months total loans have grown by 8.1%. Hansabank’s market 

share in Estonia at the end of September 30 was 51.7%. At the end of June the loan 

loss 

2(6)

reserve formed 3.88% of total loan portfolio (4.41% in the beginning of the year).

As a result of a modest loan growth and a fairly healthy growth in deposits, the 

volume of liquid assets increased by more than EEK 1.6 billion over the nine months. 

Deposits and loans to other banks increased by 16.0% to EEK 3.07 billion, treasury 

securities increased by 82.1% to EEK 2.66 billion, and cash and dues from the central 

bank went up by 0.6% to EEK 3.28 billion.

Group’s tangible assets totalled EEK 998.3 million as of September 30, which is 5.4% 

more than in the beginning of the year. The goodwill has decreased by EEK 183.1 

million to EEK 572.1 million during the nine months.

 

Hansabank’s consolidated net profit for the first nine months of 1999 was EEK 574.6 

million. The results of the principal business lines were the following: banking in 

Estonia EEK 345.9 million, banking in Latvia EEK 20.5 million, leasing and factoring 

EEK 162.7 million, insurance EEK 1.7 million, banking in Lithuania EEK –8.9 million 

and other support functions EEK 1.8 million. In addition to the mentioned business 

lines, consolidated results also include eliminations and on the group level an 

extraordinary income of EEK 49.5 million from the sale of Eesti Kindlustus.

 

Interest income totalled EEK 1,763.0 million and interest expense EEK 658.2 million 

for the nine months of 1999. Net interest income thereby amounted to EEK 1,104.8 

million. Despite the EEK 1.1 billion loan growth in the third quarter, the monthly 

average loan interest revenue continued to decrease – EEK 109.0 million in the first 

quarter, EEK 104.7 million in the second quarter and EEK 100.3 million in the third 

quarter. The decrease comes from the significant reductions in interest rate level in 

spring 1999. This decrease has been partially compensated by interest revenues from 

leasing, which comparable figures for the three periods were EEK 61.5 million, EEK 

63.6 million and EEK 65.8 million. There has also been an increase in interest 

revenue form debt securities and correspondent and overnight deposits kept in other 

banks. The latter has been positively influenced by the central bank’s decision to 

start paying a 1.5% interest on the reserve kept by the commercial banks in the 

central bank.

For the interest expense the main cost driver is deposits – their volume and interest 

level. In the beginning of the year term deposit rates were lowered parallel to loan 

interest rates (12-month EEK deposit rate has been lowered from 13.0% to 5.75%). As a 

result the average interest expense on term deposits decreased from 9.26% in the 

fourth quarter of 1998 to 6.57% in the third quarter of 1999. Additionally, starting 

from July 1 Hansabank lowered the interest rate for demand deposits and unified the 

different interest calculation methods used previously by Hansabank and Hoiupank. 

According to the new system a 1% interest rate will be paid on the average balance of 

demand deposits, which has reduced the average interest rate paid on demand deposits 

(incl. overnight deposits) from 1.72% in the second quarter to 1.37% in the third 

quarter.

 

Compared to 1998 the average yield of interest earning assets decreased by 101bp to 

10.09% for the three quarters of 1999. At the same time the cost of interest bearing 

liabilities decreased by 73bp to 3.82% whereby the spread narrowed by 27bp to 6.27%. 

The Group’s net interest margin on the other hand increased in by 8bp to 5.02%. 

 

Group’s loan, leasing and guarantee provisions totalled EEK 361.1 million during the 

nine months of the year. Actual loan losses amounted to EEK 411.6 million. In the 

third quarter the group had its first larger recovery of EEK 28 million taking the 

total recoveries for the nine months to EEK 52.5 million. In the fourth quarter the 

bank expects the recoveries be at least in the range of EEK 20 million. Compared to 

the first and second quarter of the year when provisions totalled EEK 121.2 million 

and EEK 153.9 million respectively, provisioning decreased to EEK 86.1 million in the 

third quarter, reflecting a slight improvement in the loan quality. This trend is 

also shown by the overdue loan to total loan ratio, which decreased from 11.36% at 

the end of May to 10.55% at the end of September. In the subsidiaries the respective 

ratios were the following (in calculating the ratios, loans to subsidiaries have been 

deducted from the loan portfolio): Hansabank 6.09% (end of May 6.70%), Hansabanka 

8.30% (10.41%) and Hansa Capital 17.64% (18.50%).

Trading income for the Group totalled EEK 400.9 million in the first nine months of 

the year. Trading income is dominated by two items: income from currency exchange, 

which during the period totalled EEK 189.8 million and income from off-balance sheet 

items (swaps, forwards, options), which amounted to EEK 132.5 million.

Fees and commissions received during the nine month period amounted to EEK 560.3 

million. Of the total fees 27.4% was earned from electronic services, 19.2% from 

transfers and 10.9% from cash services. The pickup in the third quarter in crediting 

activities also reflected on the volume of respective fees. While in the first 

quarter of the year loan and leasing fees totalled EEK 27.3 million forming 16.3% of 

all service fees, their volume increased to EEK 45.8 million in the third quarter, 

forming already 24.0% of total service fees.

The Group’s total revenues amounted to EEK 2,032.1 million over the first nine months 

of the year. The revenue distribution for the period was the following: 39.2% net 

interest income after provisions, 27.6% fee income, 19.7% trading income, 4.9% income 

from subsidiaries and affiliates, 2.4% income from insurance and 6.2% other income.

 

Operating expenses (incl. depreciation and goodwill amortisation) totalled EEK 

1,323.4 million during the three quarter of 1999. 

Service fees paid by the group amounted to EEK 157.9 million for the nine months. The 

largest share, one third, of paid service fees is formed by payments to the Deposit 

Guarantee Fund, which during nine months totalled EEK 47.2 million. Another 

significant cost item is fees paid for card services totalling EEK 35.7 million over 

the same period.

Personnel expense, which forms 31% of total expenses amounted to EEK 414.5 million 

during nine months. However, its share in total expenses has been decreasing over the 

past year due to internal restructuring and sale of non-strategic companies. From the 

merger the number of employees has decreased by 1,500 to 2,989 at the end of 

September. The average number of employees during the nine months was 3,342.

During the nine months administrative expenses totalled EEK 284.1 million and IT 

expenses amounted to EEK 74.6 million.

Other expenses, which totalled EEK 242.6 million over the first nine months also 

include goodwill amortisation in the amount of EEK 152.0 million. Almost half of 

other expenses (excl. goodwill amortisation), i.e. EEK 43.0 million is formed by 

marketing expense, which also includes the unification of corporate identity in the 

distribution network. This project has almost been finalised, giving reason to 

believe that the particular expense item should decrease in the fourth quarter.

Depreciation expense amounted to EEK 149.7 million for the nine month period. Of this 

EEK 113.0 million was formed by machinery and equipment, EEK 20.9 million by real 

estate and EEK 15.8 million by intangible assets.

 

At the end of September Hansabank Group’s branch office network consisted of 159 

branches (129 in Estonia, 28 in Latvia and 2 in Lithuania) and the group employed 

2,989 people. The cost-income ratio for the nine months was 57.7% (65.1% with 

goodwill amortisation), and the cost to average asset ratio was 5.3% (6.0% incl. 

goodwill amortisation).

 

 

Starting from 20.10.99 slide shows on the 9-month financial results will be posted on 

Hansabank’s Internet homepage (www.hansa.ee).

 

 

 

HANSABANK

 

 

 

Mart Toevere

Analyst

Tel. +372 6131 569