Hansabank announces record profit, predicts cheap loans to stay

Hansabank announced Oct. 25 record profits for the third quarter, predicting that the cheap loans which have fueled profitability will continue until next spring.

The bank, the largest in the Baltics, posted a net profit of 36.6 million euros, 33 percent up from the same period last year. "The third quarter of 2002 was very successful for Hansabank Group," said Mart Toevere, Hansabank's head of investor relations.

He said the one sector sparking the bank's impressive quarterly results was lending activities. Growth in loans in the third quarter almost equaled that of the first half of the year: 215 million euros versus 256 million euros respectively.

Hansabank's total loan portfolio amounted to 730 million euros at the end of September, a 32 percent increase on 2001. About half of the loan growth came in Estonia, 28 percent from Latvia and 21 from Lithuania. Loans to private individuals formed 31 percent of the growth.

The group's aggregate loan portfolio increased by 3.3 billion kroons to 47.6 billion kroons.

In an on-line news conference, Indrek Neivelt, Hansabanks CEO, said the bank did well in Latvia this year. "Our customer base in Latvia has increased considerably, and they have become the leader in providing e-banking solutions," said Neivelt.

"Going forward, we expect growth in Estonia to slow down, while Latvia and Lithuania will become the most important growth markets for the group," he said.

According to Neivelt, the Baltic economies are in good shape and will likely grow about 5.5 percent in 2003.

Neivelt also said Hansabank's experts have met representatives of the Bank of Estonia in regard to the bank's loan strategy and have taken their recommendations into account. "We've always had conservative loan tactics," he commented.

The Bank of Estonia had earlier issued warnings about the possible negative effect that cheap loans might have and suggested an increase of self-financing up to 30 percent. Presently most of Estonia's banks offer favorable mortgage loans, some even with zero percent self-finance. This is largely due to KredEx, a self-sustaining state-run fund in the jurisdiction of the Ministry of Economic Affairs geared towards supporting the development of enterprises, exports and housing.

In a new report on Estonia's banking sector, Fitch Ratings, an international rating agency, said that Estonia's banks have made "rapid progress toward achieving international standards" and overall can be characterized as "healthy."

"Nevertheless, bank lending [in Estonia] continues to expand rapidly, despite a slowdown in trade and economic growth, especially in consumer finance, leasing, and property development. The small size and highly open nature of Estonia's economy exposes the financial sector to outside events," writes Fitch.

However, Hansabank, which accounts for one-third of the Baltic Index's market capitalization and is one of the most liquid stocks on the local bourse, is confident in its loan portfolio. "Our private individuals' loan portfolio is stable and of good quality," said Neivelt. "We have not encountered problems in keeping up with loan payback schedules or anything."

Sander Danil, an analyst with Uhispank, the second-largest bank in Estonia, said Hansabank's results were surprisingly good. "The net interest margin has risen to 4.28 percent, which is great, but presumably the high growth will be temporary due to tough competition," he said.

At the same time Danil noted an "alarming" disproportion between Hansabank's loan and deposit portfolios. "The loan portfolio has increased by 32 percent while deposits only by 11 percent," added Danil.