Hansabank Group Financial Results Q2 2008

Transcription

1 Hansabank Group Financial Results 2008

2 Content Highlights Volumes Income Expenses Risk 2

3 Highlights 2008 Following larger one-off events affected performance: Sale of Russian business unit. On 12 May 2008, AS Hansapank and AS Hansa Capital entered into an agreement with Swedbank AB for the sale of OAO Swedbank and Hansa Leasing Ltd. The transfers were made at market value and the sale resulted in a loss of EUR 3m. Sale of Pankade Kaardikeskus (Banks Cards Center, PKK). In Estonia, Hansapank, SEB Pank and Sampo Pank sold PKK to Northern Europe Transaction Services. Capital gain on the sale of the shares in associated company was EUR 7m. Reversal of bonus reserve. The accumulated bonus reserves were reduced by about EUR 20m during 2008 due to excessive accrual in recent years; as a result performance based staff costs in Hansabank decreased with the same amount. The one-off effects are recorded at the Hansabank group level and not allocated to country business units. Current financial analysis is presented for continued operations (without OAO Swedbank and Hansa Leasing Ltd). All historical ratios have been recalculated for continued operations. 3

4 Highlights (continued operations) 2008 Net profit EUR 135m in 2008, EUR +20m vs, annual growth 7% The following factors affected Hansabank s performance: Positive net effect of one-off transactions Recovery of trading income to average level Increase in loan losses mainly in real estate sector Hansabank s results without the effect of one-off transactions was the following: net profit EUR 108m (-15% YoY), income EUR 255m (+5% YoY), operating expenses EUR 108 (+14% YoY), ROE 21.1% and cost-income ratio 42.3% 4 Total income EUR 259m, EUR +18m vs, annual growth 7% (normalized +5%) Net interest income almost unchanged on the back of higher funding cost and change in funding mix (see page 16 for more details) Trading income recovered from weak (see page 19 for more details) Other income strong due to gain on the sale of related companies Total expenses EUR 85m, EUR -13m vs, annual decline -10% (normalized +14%) Expenses include a reversal of bonus reserve in the amount of EUR 20m. All countries decreased number of employees (excluding temporary trainees) Growth in administrative is related to the bank s investments to organization Loans EUR +700m QoQ, 20% YoY Deposits EUR +157m QoQ, 10% YoY Net loan losses increased by EUR 8m from to 55bps

5 Key financials 2008 in millions of EUR % YoY 2008 QoQ norm 2 % YoY Loans 20,341 16,885 20% 19, Deposits 11,035 10,0 10% 10, Income % % Expenses % % EBT % % Net profit % % EVA % % Return on equity % 32.1% 23.6% 21.1% Cost-income 32.9% 39.0% 40.7% 42.3% Net interest margin 2.69% 2.91% 2.76% Employees (FTE) 9,242 9,158 9, Group ROE based actual equity 2 normalized results - for better comparison, changes in main indicators have been normalized by the effect of disposal of Russian companies, disposal of associated company and reversal of bonus

6 Quarterly trends 150 Net income Normalized EUR 108m 0 Q3 Q % Cost-income 40% ROE on actual equity 35% 40% 30% 44% 40% 39% 41% 38% 33% Q3 Q N 42% 30% 25% 20% 15% 30% 32% 29% 24% 24% 26% Q3 Q N 21% 6 normalized results - for better comparison, changes in main indicators have been normalized by the effect of disposal of Russian companies, disposal of associated company and reversal of bonus

7 Performance against mid-term financial targets 2008 Group Normalized Group* Target EBT growth 6% -13% >20% ROE on actual equity 26% 21% >20% Cost-income 33% 42% <42% Net loan losses 0.55% <0.35% 2008 Est Lat Lit EBT growth -8% 38% 18% ROE on allocated equity 31.5% 23.7% 24.1% Cost-income 39.9% 42.0% 46.7% Net loan losses** 0.58% 0.75% 0.31% 7 * normalized results - for better comparison, changes in main indicators have been normalized by the effect of disposal of Russian companies, disposal of associated company and reversal of bonus **Net loan losses = (changes in general and special provisions + net write offs) / credit portfolio at the beginning of the year

8 Contribution to net profit change from 2008 By main P&L items By countries EURm Opex Trading Other Inc Net Fees NII Taxes and other 135 NLL 08 EURm Est Lat Lit Group 08 Main contributors to the change Positive one-off effects of related company disposals and bonus reversal (The financial effect is recorded at the Hansabank Group level and not allocated to country business units) Recovery of trading income Higher net loan losses in all countries All countries decreased number of employees during (excluding temporary trainees) 8

9 Quarterly trend by business units Estonia 70% 60% 50% 40% 39% 41% 36% Cost-income 39% 36% 38% 34% 43% 38% 40% 45% 40% 35% 30% 25% ROE 43% 42% 42% 41% 41% 37% 39% 28% 33% 32% 30% 70% Q3 Q4 Q3 Q % Q3 Q4 Q3 Q Latvia 60% 50% 40% 47% 44% 45% 39% 41% 36% 37% 41% 38% 42% 45% 40% 35% 30% 25% 37% 32% 37% 37% 33% 28% 33% 29% 30% 24% 30% 70% Q3 Q4 Q3 Q % Q3 Q4 Q3 Q Lithuania 60% 50% 40% 60% 51% 48% 52% 47% 44% 43% 47% 47% 47% 45% 40% 35% 30% 25% 31% 34% 30% 33% 26% 28% 28% 25% 22% 24% 9 30% Q3 Q4 Q3 Q % Q3 Q4 Q3 Q

10 Income Statement and main ratios by BUs EURm 2008 Est Lat Lit Total income Growth YoY % % % % Operating expenses Growth YoY % % % % Operating profit Growth YoY % % % % Net profit Growth YoY % % % 29 3% EVA 1 Growth YoY % % % % Employees 2 (FTE) Growth YoY 9,242 1% 3,346 0% 2,659 6% 3,237-2% 10 1 Starting from January 2008, country EVA is reported under Basel II standardized. Group EVA is calculated on total equity while country EVA on allocated equity. 2 BU number of employees includes IT and Group level employees

11 Content Highlights Volumes Income Expenses Risk 11

12 Loan portfolio growth Loan portfolio distribution 08 28% 40% Est Lat Lit 32% 80% 60% 40% 20% 0% 86% Loan portfolio growth 67% 56% 38% 23% 23% 21% 19% Q3 Q4 Q3 Q Mortgage Corporate lending Consumer Finance ABF EURm, 2008 vs 2008 Est Lat* Lit Group** Loans (QoQ abs. growth) - origination fees Corporate Lending Mortgages Consumer Finance Asset Based Finance Other Deposits (QoQ abs. growth) Demand Time *Latvian corporate portfolio growth includes refinancing of existing loan from Swedbank to Latvian business unit (Nordic real estate group with significant Latvian investments) **Country results do not sum to total group results as eliminations and group units are excluded.

13 Lending and deposit growth by countries Deposit growth vs market (only resident for Latvia)* Market Hansa 1, Q3 Q Q3 Q Q3 Q Estonia Latvia Lithuania 750 QoQ abs growth YoY % growth Loan growth 100% % % % % 0 Q3 Q4 Q3 Q Q3 Q4 Q3 Q Q3 Q4 Q3 Q % 13 * Market data from respective country central banks and financial supervision authorities. 08 market information for 2 months only

14 Content Highlights Volumes Income Expenses Risk 14

15 Income EURm YoY QoQ +7% +7% Change in revenue EURm Q3 Q Trading Other Inc Net Fees NII 08 Despite increasing financing cost net interest income decreased only EUR 0.8m compared to Trading income recovered from poor results to an average quarterly level Other income includes gain on the sale of PKK 15

16 Net interest income EURm Net interest income Core income item has been under pressure given higher funding costs. Net interest income declined in 08 by EUR 0.8m 40 0 Q3 Q % Net interest margin 20 Change in net interest income QoQ % 2.5% 2.0% % 2.92% 2.84% 2.78% 2.81% 2.76% 2.69% Q3 Q Estonia Latvia Lithuania Group 2.41% EURm Q3 Q price volume number of days

17 Margin development 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2005 Funding structure Q Deposits 20 Q Q Foreign funding 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Time vs demand deposit 2005 Q Demand 20 Q Q Time Main factors affecting NIM: Largest impact - higher cost of foreign funding Higher cost of deposits Change of funding structure towards more expensive foreign funding Change in deposit structure from demand deposits to time deposits % 2.8% 2.6% 2.4% 2.2% 2.0% 1.8% 1.6% 2.77% 2.37% 1.94% Loan margins 2.54% 1.91% 1.68% Q3 Q4 Q3 Q Estonia Latvia Lithuania Deposit margin = (FTP-interest expense)/average deposits Loan margin = (interest income-ftp)/average loans 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Deposit margins 2.09% 2.16% 1.94% 1.08% 1.81% 1.08% Q3 Q4 Q3 Q Estonia Latvia Lithuania

18 EURm Net fee income Net fee income Q3 Q Net fee income recovered from, but longer-term trend is flat since at around EUR 52m. Trends in countries differ slightly. The growth of net fee income has suffered due to poor performance on financial markets both because of decreasing trading activity as well as reduced success fees Fee income 2008 vs 2008 Est Lat Lit Other Securities Custody Cash and settlements Lending and guarantees Card services

19 Trading income Total trading income Decline in trading income by country EURm EURm Q3 Q Est Lat Lit Group Client margins Foreign exchange Securities Other Trading income recovered from poor performance in 08 Trading income is affected by the loss on the adjustment of unrealized foreign exchange differences (EUR 4.5m) in relation to the sale of Russian business unit 19

20 Content Highlights Volumes Income Expenses Risk 20

21 Expenses EURm YoY -10% QoQ -13% Q3 Q EURm Change in operating expenses Personnel Admin Data network Other 08 Operating expenses decreased by 10% YoY to EUR 85m in 08. Expenses include a reversal of bonus reserve. Without this effect operating expenses grew 14% YoY Growth in administrative expenses is to a large extent driven by professional services and related to the bank s investments to longer-term strategic initiatives. 21

22 Personnel expenses EURm Salaries & Taxes Bonus Training Total FTE , ,158 +/- 27% -177% -14% -31% 1% Group s personnel expenses decreased by 31% YoY. Annual decrease is a result of the reduction of accumulated bonus reserves by EUR 20m during Without this effect, personnel expenses grew 11% YoY Employee growth during 2008 Total growth, QoQ Incl trainees Local business units Other local operations IT units Group units 22 Est* Lat* Lit* Group *BU number of employees does not include IT and Group level employees 30% 25% 20% 15% 10% 5% 0% -5% -10% FTE growth YoY Q3 Q4 Q3 Q Estonia Latvia Lithuania Total HBG

23 Content Highlights Volumes Income Expenses Risk 23

24 Asset quality and provisioning costs Net loan losses Net loan losses by country 250% 200% 150% 100% 50% EURm Estonia Latvia Lithuania Group % 0.75% 0.31% 0.55% % 0.54% 0.25% 0.39% % 0.56% 0.23% 0.40% 0% 0 Q3 Q Net loan losses NLL YoY % growth Net loan losses = (changes in general and special provisions + net write offs) / credit portfolio at the beginning of the year 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Net loan losses Net loan losses Corporate incl real estate incl industry Private incl home loans Group % 0.98% 0.83% 0.32% 0.% 0.55% % 0.86% 0.09% 0.32% 0.16% 0.39% % 0.57% 0.31% 0.33% N/A 0.40% -1.5% -2.0% Estonia Latvia Lithuania Group 24

25 Asset quality overdue more than 60 days 2.0% 1.6% Overdue more than 60-days/12m old portfolio 2.0% 1.6% By country* 1.2% 1.2% 0.8% 0.8% 0.4% 0.4% 0.0% Group % Q3 Q Est Lat Lit Group 1.2% By client type* 2.5% By sector 0.8% 2.0% 1.5% 0.4% 0.0% Q3 Q Private Corporate 25 * Overdues over 60 days / 12 months old portfolio 1.0% 0.5% 0.0% Q3 20 Q Real estate, rent Retail and wholesale Construction Industry Logistics and comm Other business services

26 Hansabank Group companies overdues vs market Estonia - overdue over 30 days / current portfolio Estonia - overdue over 60 days / current portfolio 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2.0% 1.5% 1.0% 0.5% 0.0% Rest of the bank market Hansapank (bank only) Rest of the bank market Hansapank (bank only) Latvia - overdue over 30 days / current portfolio Latvia - overdue over 90 days / current portfolio 5% 4% 3% 2% 1% 0% 3% 3% 2% 2% 1% 1% 0% Rest of the bank market Hansabanka (bank only) Rest of the bank market Hansabanka (bank only) 26

27 Group lending by sectors Portfolio, June 2008 Portfolio growth, 08 Individuals Mortgage Other 43% % Real-estate mgmt 3,110 15% %** Retail & Wholesale 1,803 9% 2 0% EURm Industry 1,801 9% 21 4% Transport 1,050 5% -26-4% Construction580 3% -13-2% Other* 3,276 16% % 0 2,000 4,000 6,000 8,000 10,000 xx% - share of portfolio and portfolio growth *Other loans includes loan amount granted to Hansa Leasing Ltd (Russia). As Russian subsidiaries were sold during this loan no longer is eliminated as intra-group loan. **Real estate management related portfolio growth includes refinancing of existing loan from Swedbank to Latvian business unit (Nordic real estate group with significant Latvian investments)

28 Estonian lending by sectors Portfolio (EURm), June 2008 Portfolio growth (EURm), 08 Individuals 3,685 45% % Real-estate mgmt 1,158 14% 28 29% Retail & Wholesale 694 9% -5-6% Industry 513 6% 18 19% Transport 308 4% % Construction 201 2% -4-4% Other 1,570 19% % 0 1,000 2,000 3,000 4, xx% - share of portfolio and portfolio growth 28

29 Latvian lending by sectors Portfolio (EURm), June 2008 Portfolio growth (EURm), 08 Individuals 2,739 43% 38 18% Real-estate mgmt 1,052 17% %* Retail & Wholesale 536 8% 0 0% Industry % 28 13% Transport 287 5% 11 5% Construction 262 4% 6 3% Other % 13 6% 0 1,000 2,000 3,000 4, xx% - share of portfolio and portfolio growth *Real estate management related portfolio growth includes refinancing of existing loan from Swedbank to Latvian business unit (Nordic real estate group with significant Latvian investments) 29

30 Lithuanian lending by sectors Portfolio (EURm), June 2008 Portfolio growth (EURm), 08 Individuals 2,197 38% 95 48% Real-estate mgmt % 34 17% Retail & Wholesale % 8 4% Industry % % Transport 455 8% 3 1% Construction 116 2% -16-8% Other % 97 49%* 0 1,000 2,000 3,000 4, xx% - share of portfolio and portfolio growth * Other - largest increase in Energy, gas and water supply sector 30

31 Mortgages Standard mortgage product allows to issue new loans with maximum LTV below 85% and loan-service ratio below 50%. Portfolio, June 2008 Average portfolio LTV Estonia 59% Latvia 74% Lithuania 61% Mortgage portfolio LTV ratios have remained solid at 59% in Estonia, 74% in Latvia and 61% in Lithuania. Average maturity 21y 23y 22y Quality of existing portfolio and each new customer/transaction are evaluated using automated scoring tools. Decision making process, product conditions, and pricing are adjusted based on creditworthiness of the clients. Sub-prime type of mortgage lending is not practiced in Baltics 31

32 Real estate portfolio As indicated by internal stress-tests and portfolio analyses, real estate and in particular residential real estate development is the most sensitive sector in HBG portfolio. Sensitivity has started to appear in overdue and default figures of corporate portfolio. 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Real estate management overdues* Q3 20 Q Around 2/3 from total Real Estate Estonia Latvia Lithuania portfolio are cash flow generating * Overdues over 60 days / 12 months old portfolio properties with good tenant mix. Properties under development process (1/3 from portfolio) are currently affected the most by decreasing prices and liquidity in the market. Hansabank has always strictly restrained from financing speculative type of properties. Additional defaults in residential real estate development sector are anticipated in the second half of 2008, but no major surprises are expected due to previously implemented portfolio limitations and individual level monitoring. Restructuring capacity has been put in place. 32

33 Group lending by sectors real estate 15% Estonia 6% 22% Portfolio, June % 9% 6% 9% 25% 15% Latvia 2% 13% 43% 15% 26% 10% 3% 16% 22% Construction Individuals Industry Real-estate mgmt Other Transport Retail & Wholesale Lithuania 4% 4% 13% 5% Office 38% Production&Warehouse Residential 41% Retail 33 34% Land plots Other

34 Sectors under close watch 34 Transportation Trucking companies are facing problems due to increasing fuel prices and lagging freight rates. This global problem has started to reflect in Hansabank s provisions (especially in SME segments) since the beginning of the year. Transportation overdues* Retail & wholesale Trade volumes growth rates have slowed down and started to decrease in Estonia and Latvia in 2008 (still growing in Lithuania). There is no substantial impact on portfolio quality yet, but worsening is expected along with decrease in consumption. Wood processing Raw material price increase coupled with sales price downwards pressure are having a negative impact on Baltic wood processing industry. Current portfolio quality is around average with only few problem cases observed. Additional problems may occur after export duties will be imposed on Russian round wood as there is dependence on imported round wood in Estonia. 2.0% 1.5% 1.0% 0.5% 0.0% Q3 20 Q Estonia Latvia Lithuania * Overdues over 60 days / 12 months old portfolio

35 Group lending by sectors retail & wholesale Estonia Portfolio, June % 34% 5% 9% Latvia 43% 9% 26% 31% 15% 35% 16% 3% Construction Individuals Industry Real-estate mgmt Other Transport Retail & Wholesale 12% Lithuania 43% 19% Distributors Specialty retail Other 69% 35

36 Group lending by sectors transport Estonia 24% 23% Portfolio, June % Latvia 16% 9% 5% 25% 28% 35% 41% 3% 15% 9% Construction Individuals Industry Real-estate mgmt Other Transport Retail & Wholesale 4% 1% 10% Lithuania 13% 11% Trucking Marine Terminals&Ports Other 36 85%

37 Collateral breakdown Hansabank s loan portfolio is adequately secured. Private mortgage portfolio is fully covered with family houses and apartments (as a rule owner occupied). Baltic Collateral (EURm) State Private real-estate June ,172 % 1% 35% Dec ,660 % 1% 33% Full asset pledge, including tangible assets and current assets, is most common case for Corporate portfolio. Collateral position enhancement with owner guarantees and additional collateral is used for more risky customers and SME segments. Corporate real-estate Guarantees Other collateral* Unsecured Unsecured corporate Unsecured private Total 7, ,810 1, ,667 38% 2% 18% 6% 4% 2% 100% 7, , ,167 39% 3% 18% 5% 4% 1% 100% The share of unsecured loans is insignificant (used for top ratings in corporate segment and consumer products in private). *Other collateral is deposits, customer payments, vehicles, etc 37

38 Regular process of outstanding loan review Portfolio quality improvement measures introduced already at the end of 20 Real estate sector growth under control, existing portfolio regularly scrutinized Strengthened risk units Increased number of people dealing with problem loans Strengthened workout team Improved the quality and increased frequency of portfolio quality reporting Set targets for new origination quality Regular loan review process includes Overall portfolio stress test once a year Portfolio review 2x per year Quarterly watch list report IRB portfolio scoring 1x per month On the individual loan basis: Client rating review minimum 1x per year Rating classes 5 and higher are subject to more frequent assessment Quarterly financials/covenants assessment For SME/SSE and private portfolio weekly overdue report (with client names identified) 38

39 Credit quality management process 39 Proactive management of watch list clients Private clients - communication on step-by-step actions to take before falling into overdues. Development of standard proactive solutions to ensure serviceability of the credit Corporate clients - proactive communication, frequent client meetings and positive attitude to find solutions Overdue management - concentrates on time horizon from occurrence of distress situation (either through late payment or on the bases of client information) to moving credit over to restructuring or workout phase. The primary focuses in overdue management is: Process design for fast and prudent management of overdues, clear process ownership Prudent tactics to handle overdue payments. Constant re-evaluation of the tactics on their effectiveness and adequacy Clearly set timing and means of client contacts Build capacity to work with distressed clients and adequate training of employees Internal target setting and incentives to reach targets Up to time reporting and follow up on taken activities Distressed debt restructuring Defined tactics of restructuring. Solutions to ensure client serviceability of the debt Extended capacity to work with distressed clients Effective solutions for collected collaterals handling

40 Capital adequacy Capital base (in millions of euros) According to Basel II rules According to Basel 1 rules ,100 Capital requirement Total Tier 1 1, , , ,900 Supplementary capital (Tier 2) Own funds, total Deductions from own funds Own funds, net , , , , , ,353.7 EURm 1,700 1,500 1, Credit risk Market risk Operational risk Capital ratios According to Basel II rules According to Basel 1 rules (per cent, unaudited) Tier 1 capital ratio 9.84% 8.71% 8.60% Tier 2 capital ratio 2.54% 2.37% 2.32% Total capital adequacy ratio 12.37% 11.08% 10.92% 40 * 20 Basel I, 2008 standardized Basel II

41 Thank you!