HANSAPANK

COMMENTARY TO FINANCIAL RESULTS



GROUP'S CONSOLIDATED FINANCIAL RESULTS, 9 MONTHS 2000



Hansabank  Group’s consolidated unaudited result for  the  first  nine

months  of 2000 was a net profit of EEK 933.9 million. As of September

30 the Group’s total assets amounted to EEK 43.89 billion.



The  Group’s consolidated assets grew by 28.2% during the first  three

quarters  of  2000  totalling  EEK 43,894.7  million  at  the  end  of

September  (annual growth was 41.4%). 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

9.64 billion achieved during the nine months, over 90% originated from

customer deposits.

Clients’  deposits  increased by a record-breaking  EEK  8.72  billion

during  the  first  three  quarters of 2000, amounting  to  EEK  28.50

billion  at  the end of September. Of the total growth 52%  originated

from  the  Estonian market, 28% from the Latvian market, 6%  from  the

Lithuanian market and 14% from the acquisition of Ventspils UBB. As  a

result  of  strong growth in the second and third quarter, the  annual

growth  of deposits reached 62% at the end of September. While  during

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

similar  pace (annualised growth of 58% vs. 56%), in the third quarter

growth  shifted  away from demand deposits and towards  time  deposits

(annualised growth of 12% vs. 48%).

The  volume  of foreign funding increased by EEK 0.64 billion  to  EEK

7.05  billion during nine months. The growth resulted from a  EUR  150

million  Eurobond  issue in April. At the same time the  group  repaid

several loans, including a EUR 51 million syndicated loan in March.



The  Group’s  shareholders’ equity increased  by  12.2%  to  EEK  5.56

billion as of September 30. The shareholders’ equity was increased  by

the  EEK  933.9  million 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 16.6% (Tier I 15.4%). Together with the unaudited

profit the Group’s adequacy ratios would stand at 17.6%.



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%. During the first nine months of the

year  the  loan  portfolio increased by 27.7%  to  EEK  24.85  billion

(annual growth 38.5%). The loan to deposit ratio decreased from  98.4%

in  the  beginning of the year to 87.2% at the end of  September.  The

sudden drop was partially caused by the acquisition of Ventspils  UBB,

its loan to deposit ratio was 35.8%.

At  the  end of September the loan loss reserve formed 2.91% 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

319.5 million, forming 1.29% of the Group’s loan portfolio.



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

banks and treasury securities) increased by 35.1% to EEK 13.73 billion

at  the end of September, forming 31.3% of total assets. The net  loan

portfolio’s share in total assets was 55.0% (54.9% in the beginning of

the year).

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 first nine  months

of  2000  was EEK 933.9 million. The Group’s net result was EEK  325.9

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

and  EEK 323.0 million in the third quarter. The third quarter  result

includes  the  following extraordinary items:  liquidation  of  a  GKO

position  from the Russian crisis (EEK +23 million), partial  recovery

of a loan given to the city of Dniepropetrovsk (EEK +28 million), loan

loss  due  to  a  fraud  in the trade finance  department  (EEK  –82.9

million)  –  in  addition to the originally published EEK  66  million

loss,   Hansabank  decided  to  write-off  all  liabilities  of   that

particular client.

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

Estonia  EEK  553.9 million, Hansabanka EEK 64.8 million,  Hansabankas

EEK  –25.2 million, Hansa Capital EEK 272.7 million, Hansabank Markets

EEK  117.1  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  –49.5

million.  In  addition to the mentioned business  lines,  consolidated

results also include eliminations.



Interest  income increased by 35.8% compared to the first nine  months

of 1999, totalling EEK 2.39 billion, at the same time interest expense

increased  by  40.5%  to EEK 0.99 billion. As a  result  net  interest

income increased by 32.6% to EEK 1.40 billion.

Loan  and  leasing  interest revenues form EEK 1.82 billion  of  total

interest income. Their volume increased by 20.5% from last year’s same

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

(38.5%). 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 six months.  Interest

income  from funds placed with other banks grew by 79.2% to EEK  216.6

million and interest income from debt securities rose by 95.7% to  EEK

224.0  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

0.57  billion. Of this EEK 67.3 million were payments to  the  Deposit

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

grown by 30.6%, compared to a 61.9% growth of deposits. Interest  paid

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

securities) increased by 21.6% compared to the nine months of 1999, to

EEK  327.6  million.  At  the  same time the  volume  of  these  funds

increased  by  9.6%  mainly on the account  of  the  EUR  150  million

Eurobond issue.

Compared  to  full-1999 the average yield of interest  earning  assets

decreased  by  50bp to 9.43%. At the same time the  cost  of  interest

bearing  liabilities  decreased by 40bp to 4.24%  whereby  the  spread

decreased  by 10bp to 5.19%. The Group’s net interest margin  remained

unchanged  at  4.86% during the nine months. Despite  falling  lending

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

growth.



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

amounted  to  EEK 0.77 million, exceeding previous year’s same  period

result  by 37.7%. All fee items recorded at least a 25% growth.  As  a

result  of  rapid  loan  growth over the past six  months,  fees  from

issuing loans, leasing and guarantees have regained their position  as

the  largest  fee  source, amounting to EEK 212.4 million  during  the

first  three quarters of the year (growth of 81.4%). 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 246% to EEK 95.9 million.  Fees  received  from

electronic  channels increased by 34.9% to EEK 207.1  million  in  the

first  nine  months of 2000. By the end of September  2000  the  Group

already  had 161,000 Internet banking users in Estonia and  12,200  in

Latvia.

Fees and commissions paid increased by 21.0% to EEK 161.3 million. The

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

for securities services, which increased by 153.7% to EEK 25.6 million

and  by  card services, which respectively grew by 38.0% to  EEK  49.3

million.  Net  service fees increased by 42.9%  to  EEK  0.39  billion

compared to the first three quarters of 1999.



Trading  income for the Group totalled EEK 0.40 billion for the  first

nine  months  of 2000, up by 0.9% from last year’s same  period.  Zero

growth  resulted from a 65.1% decrease to EEK 46.2 million  in  income

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

high  level.  At  the  same  time income  from  foreign  exchange  has

increased by 46.6% to EEK 278.4 million. Income from equity  and  bond

trading and investment portfolios amounted to EEK 56.9 million.



The  Group’s total revenues amounted to EEK 1.59 billion in the  first

nine  months  of 2000, exceeding last year’s three quarter  result  by

22.6%.  The  revenue  distribution for the period was  the  following:

55.5% net interest income, 24.2% net fee income, 16.0% trading income,

and 4.3% other income. The Group’s total revenues amounted to EEK 0.77

billion  in  the  first  quarter, to EEK 0.82 billion  in  the  second

quarter and to EEK 0.94 billion in the third quarter.



Operating expenses totalled EEK 1.34 billion for the first nine months

of  this  year, increasing from previous year's same period by  17.3%.

Operating expenses amounted to EEK 0.41 billion in the first  quarter,

to  EEK 0.45 billion in the second quarter and to EEK 0.49 billion  in

the third quarter.

Of  total  expenses  36.1%  was formed by personnel  expenses  (annual

growth  of 16.7%), 22.4% by administrative expenses (annual growth  of

14.9%),  20.9% by other expenses (incl. goodwill amortisation) (annual

growth of 15.5%), 14.8% by depreciation (annual growth of 32.7%),  and

5.8%  by IT expenses (annual increase of 3.6%). 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. Of the

9-month depreciation 36% was formed by IT, 36% by other equipment, 17%

by  real  estate  and 11% by intangible assets. The  16.7%  growth  in

personnel  expenses is driven by a 12.0% increase  in  the  number  of

personnel  to  3,348. Although in Estonia the number of employees  has

not  changed  significantly  over  the  past  year,  our  Latvian  and

Lithuanian  banks  as  well  as  Hansa  Capital  have  expanded  their

operations  quite significantly, contributing 88% of  total  personnel

growth. The faster pace of administrative expense growth is due  to  a

50.6%  rise in professional services (especially consultancy)  to  EEK

64.8 million.

The  17.3%  growth of expenses falls short of both, the 22.6%  revenue

growth  as  well  as  the  41.4%  asset  growth,  reflecting  improved

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

decreased  to 47.0% over the first nine months of the year (after  net

provisions 57.0%) and the ratio of operating expenses to total  assets

decreased to 4.11%.



Loan  and  guarantee  provisions decreased  by  2.3%  from  the  three

quarters of 1999, amounting to EEK 352.7 million during the first nine

months. Provisions totalled EEK 59.3 million in the first quarter, EEK

120.9 million in the second quarter and EEK 172.4 million in the third

quarter.  The  third  quarter provisions also include  the  previously

mentioned  EEK 82.9 million loss. Actual loan write-offs  amounted  to

EEK 261.5 million and actual recoveries were EEK 99.5 million.





Mart Tõevere

Head of Investor Relations

+372 6131 569