Swedbank AS* Interim report January-September 2011 Tallinn, 30 November 2011

Transcription

1 * Interim report January-September Tallinn, 30 November Third quarter compared with second quarter Profit for the period for continuing operations was EUR 34m (34m) The return on equity was 34.3 per cent (23.5) The cost/income ratio was 0.57 (0.35) Net interest income increased by 5 per cent to EUR 58m (55m) Profit before impairments decreased by 52 per cent to EUR 24m (50m) Net credit impairments amounted to EUR -14m (15m) January-September compared with January-September 2010 Profit for the period for continuing operations was EUR 113m (22m) The return on equity was 28.8 per cent (-6.4) The cost/income ratio was 0.43 (0.38) Net interest income increased by 23 per cent to EUR 166m (135m) Profit before impairments decreased by 5 per cent to EUR 120m (126m) Net credit impairments amounted to EUR 1m (101m) The Tier 1 capital ratio was 18.9 per cent according to the Basel 2 rules (11.8 per cent on 31 December 2010) * The consolidated financial statements of (Estonia) comprise and its subsidiaries and its interest in associates. (Estonia) legal structure changed in the third quarter. On 1 July (Estonia) sold its Latvian and Lithuanian subsidiaries to Swedbank AB in Sweden (see note 4), according to which the three Baltic subsidiaries are now directly owned by Swedbank AB in Sweden. Therefore Income statement items of the second quarter and earlier are restated to include only the result from continuing operations (excluding (Latvia) and its subsidiaries and Swedbank AB (Lithuania) and its subsidiaries). Balance sheet and other volume figures of the second quarter and earlier are not restated and include the result from (Latvia) and its subsidiaries and Swedbank AB (Lithuania) and its subsidiaries. Thus, reported balance sheet and volume items of the third quarter are not directly comparable to the balance sheet items and volumes shown in the second quarter and earlier. For analytical reasons some comments are about Estonian volumes only. Interim report January-September Page 1 of 12

2 Financial summary Income statement Q2 % Jan-Sep Jan- Sep Net interest income Net commissions Net gains and losses on financial items at fair value Other income Total income Staff costs Other expenses Total expenses Profit before impairments Impairment of tangible and intangible assets Credit impairments Operating profit Tax expense Minority interest Profit for the period for continuing operations DISCONTINUED OPERATIONS Profit for the period from discontinued operations Profit for the period Key ratios Q Jan-Sep Jan- Sep 2010 Return on equity, % Cost/Income ratio Tier 1 capital ratio, % Capital adequacy ratio, % Share of impaired loans, gross, % Total provision ratio for impaired loans, % Balance sheet data 30 Sep 30 Sep 31 Dec Loans to the public Deposits and borrowings from the public Shareholders' equity Total assets Interim report January-September Page 2 of 12

3 Overview Quick economic recovery continues in Estonia. In the first and second quarter of Estonia s GDP increased by 9.5 and 8.4 per cent respectively from last year. According to preliminary data the GDP growth was 7.9 per cent in third quarter of. The growth is mainly supported by exporting sectors, mainly manufacturing, as well as increased investment activity and gradually recovering household consumption. The latter is supported by increasing employment and higher confidence. Decrease in GDP growth speed can be expected in the coming quarters because of increasing calculation base levels. Though, Estonian economic growth is highly dependent on the economic situation in the Estonia s export partners and hence is dependent on how global economic problems, including debt crisis, are solved. Inflation remained high driven mostly by external factors, but also due to local factors such as little domestic competition. In September, annual consumer price inflation was 5.2 per cent. Situation in labour market has improved. During the first nine months the number of employed persons increased by about 35 thousand. Unemployment decreased to 10.9% compared to 13.6% in December Decreased unemployment and economic growth supported the confidence increase in the first half-year. Broad media coverage of debt crisis and increased uncertainty in the global economy has started to decrease the confidence in the last months. Since August the consumer confidence indicator and broader economic sentiment indicator have decreased below the levels showed a year ago. Loan volumes are still decreasing in Estonian market, but the pace of decrease has dropped in the last two quarters. At the same time market deposit volumes continue to grow. Swedbank received positive initial customer feedback for its efforts to develop stronger partnerships with them. In the third quarter international magazine Global Finance named Swedbank as the best consumer internet bank in the Baltic States in and Swedbank in Estonia was recognized as the most customer friendly Estonian company. Third quarter Result reported a profit of EUR 33.6m from continuing operations in the third quarter, compared to the EUR 33.5m profit a quarter before. The profit from continuing operations did not change remarkably but there were notable fluctuations between income statement revenue and expense groups because of selling the Latvian and Lithuanian subsidiary and due to changed income statement structure after the selling. Net interest income increased by 5 per cent compared to the second quarter. Additional interest revenue from increased loans to credit institutions supported the growth most. Interest revenues from the public loans increased slightly because the positive effect from increased base rates exceeded the negative impact of loan portfolio decrease. Interest expenses increased because of higher deposit interest rates compared to the second quarter. Net commission income increased by 4 per cent during the quarter due to higher bank card fees, supported by increased retail turnover, and higher securities commissions. Net gains and losses amounted to EUR -32.2m compared to EUR -0.3m in the second quarter. The negative result comes mainly from the foreign exchange loss got after selling Latvian and Lithuanian subsidiary. The profit from the same transaction is shown as profit from discontinued operations. Other income amounted to EUR 14.1m compared to EUR 6.8m in the second quarter. The growth comes mainly from changed structure of income statement after selling Latvian and Lithuanian subsidiary. From the third quarter the cost compensation invoices to cover the expenses made in Estonian units to support the former Latvian and Lithuanian subsidiaries are shown as other income. These revenues and the related expenses were not shown in the income statement before the selling. The amount of the mentioned expenses and resulting revenues were EUR 5m in the third quarter. Expenses were EUR 32.1m compared to EUR 26.9m in the second quarter. Expenses increased mostly due to above mentioned additional expenses made to support former subsidiaries. The cost/income ratio was 0.57 (0.35 in the second quarter). Volumes The following comments are about Estonian volumes only*. Volume change trends shown in the second quarter continued loan portfolio decreased by 2 per cent during the third quarter, deposit volumes increased by 5 per cent. Credit and asset quality Net recoveries for the period amounted to EUR 14m compared with EUR 15m in credit impairments during the second quarter. The net recoveries are result of decreased impaired loans and this trend is expected to continue. Total income decreased by 27 per cent during the third quarter mostly due to drop of the net gains and losses. Interim report January-September Page 3 of 12 * See the note on the first page

4 January-September Result reported a profit of EUR 113m from continuing operations for the first nine months, compared with profit of 22m a year ago. The result is improved mainly due to smaller credit impairments. Despite the significant foreign exchange loss due to selling the Latvian and Lithuanian subsidiaries in the third quarter the total income of the first nine months increased by 4 per cent - mostly due to remarkably increased net interest income. Net interest income rose by 23 per cent against January- September last year, supported by lower deposit costs resulting from falling local interest rates as well as higher euro market rates that increased interest income from loans. While the negative impact from impaired loans is gradually subsiding, declining lending volumes are adversely affecting net interest income. In the first nine months of the effect of the reclassification of penalty fees as net interest income was 4.0m (in 2010 penalty fees were classified as other income). Net commission income decreased by 6 per cent compared to the same period a year ago. The commission income is decreased mostly because of new pricing of Euro payments after the adoption of the Euro. At the same time card net commissions have increased driven by increased retail turnover. Net gains and losses amounted to EUR -29.9m compared to EUR 11.2m a year ago. The negative result comes mainly from the foreign exchange loss got after selling Latvian and Lithuanian subsidiary. The profit from the same transaction is shown as profit from discontinued operations. Other income increased mainly due to changed structure of income statement after selling Latvian and Lithuanian subsidiary the other income includes revenues from cost compensation invoices from the third quarter (see explanation in the third quarter section above). The amount is also shown as expenses. Expenses increased by 18 per cent from the same period last year. Staff costs increased due to provisions for variable compensation, from training and due to increased number of employees. Marketing expenses increased due to the launch of a new branding concept. Expenses increased also because of mentioned additional expenses made to support former subsidiaries. The cost income ratio was 0.43 (0.38). Volumes* Swedbank s lending volumes decreased by 8 per cent from 31 December 2010 in Estonia - mostly due to limited demand for new credits. However, loan requests are gradually increasing, particularly among corporate customers and lending volumes decrease are expected to diminish in coming quarters. In the first nine months of, Swedbank s market share in lending decreased by 2.0 pp to 40.7 per cent in Estonia. The decrease was 0.3 pp in the third quarter. Swedbank s priority is to support and promote sustainable economic and financial development in its home market countries and hence our customers, not necessarily to maintain market share. Deposit volumes decreased by 8 per cent from 31 December 2010 in Estonia. Swedbank s deposit market share increased by 0.8 pp to 45.9 per cent in Estonia compared to 31 December The loan-to-deposit ratio decreased to 116 per cent (136 per cent as of 31 December 2010). Over the year, the number of active customers has increased by almost (of which 7100 were private and 3500 business clients). Credit and asset quality Credit impairments for the period amounted to EUR 1m compared to EUR 101m a year ago. Improvement is due to the revaluation of collateral and rating upgrades following successful restructuring activities in the corporate portfolio, as well as increased ability for private individuals to service their loans. Also impaired loans decreased due to write-offs and as a result of workouts and migrations to better risk classes. Most of the write-offs were from the corporate portfolio as the workout process is proceeding at a slower pace for the private portfolio. Swedbank s focus is on new lending quality along with credit portfolio management activities to ensure wellbalanced, sustainable growth. Interim report January-September Page 4 of 12 * See the note on the first page

5 Income statement CONTINUING OPERATIONS Q2 % Jan-Sep Jan- Sep Net interest income Net commissions Net gains and losses on financial items at fair value Share of profit or loss of associates Other income Total income Staff costs Depreciation/amortisation Other expenses Total expenses Profit before impairments Impairment of intangible assets Impairment of tangible assets Credit impairments Operating profit Tax expense Minority Interest Profit for the period from continuing operations DISCONTINUED OPERATIONS Profit for the period from discontinued operations Total comprehensive income for the period Statement of comprehensive income Q2 % Full-year Full-year Profit for the period reported via income statement , , ,7 Exchange differences, foreign operations , Cash flow hedges: -Gains/losses arising during the period 0 0 Other comprehensive income for the period, net of tax Total comprehensive income for the period , Interim report January-September Page 5 of 12

6 Balance sheet Assets 30 Sep 30 Sep 31 Dec Cash and balances with central banks Loans to credit institutions Loans to the public Interest-bearing securities Fund shares for which the customers bear the investmenst risk Shares and participating interests Derivatives Intangible fixed assets Tangible assets Current tax assets Deferred tax assets Other assets Prepaid expenses and accrued income Total assets Liabilities and equity Amounts owed to credit institutions Deposits and borrowings from the public Debt securities in issue, etc Financial liabilities for which customers bear the investment risk Derivatives Other liabilities Accrued expenses and prepaid income Provisions Subordinated liabilities Equity Total liabilities and equity Interim report January-September Page 6 of 12

7 Statement of changes in equity Share capital Other contributed equity Shareholders' equity Translation of foreign operations Reserves Retained earnings Opening balance 1 January, New share issue Appropriations to reserves Total comprehensive income for the period Closing balance 31 December, Opening balance 1 January, Capital reduction Dividends paid Appropriations from reserves Total comprehensive income for the period Share related compensation 3 3 Closing balance 30 September, Total Cash flow statement Jan-Sep Jan-Sep Full-year Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow for the period Cash and cash equivalents at beginning of period Cash flow for the period Exchange differences on cash and cash equivalents Cash and cash equivalents at end of period Basis of Preparation (Estonia) is a fully-owned subsidiary of Swedbank AB, the parent company of Swedbank Group who publishes interim reports for Swedbank Group. The Interim report for the period of January-September is not audited. Note 1 Accounting policies These interim report condensed financial statements are prepared in accordance with IAS 34 Interim financial reporting. Several new and revised IFRS and interpretations by IFRIC have not had any effect on the financial position, results or disclosures of Swedbank Baltic. The accounting principles applied in the interim report are the same as those applied in the preparation of the Annual Report for These condensed financial statements should be read in conjunction with the annual financial statements for the year ended 31 December Note 2 Critical accounting estimates Swedbank Baltic uses various estimates and judgments about the future to determine the value of certain assets and liabilities. The most important assumptions in terms of amount are made with regard to provisions for loan losses. Provisions for loan losses For loans that have been identified as impaired as well as portfolios of loans with similar credit terms affected by a loss event, assumptions are made as to when in the future the cash flows will be received as well as their size. Provisions for loan losses are made for the difference between the present value of these projected cash flows and the claims carrying amount. Decisions are therefore based on various estimates and management s judgments about current market conditions. Portfolio provisions are based on loss estimates made in accordance with capital adequacy rules. In economic conditions improved in the Baltic countries and Swedbank Baltic provisions increased at significantly slower rate during. The increases were based on the losses that management judged as most likely against the backdrop of the current economic outlook within the range of reasonable assumptions. Interim report January-September Page 7 of 12

8 Note 3 Capital Adequacy Swedbank uses IRB (Internal ratings based) method to calculate capital requirement for credit risk and standardized method for market and operational risks in all group companies. Companies included in capital adequacy calculation As of 30 September, companies included in capital adequacy calculation were as follows: Parent company and major subsidiaries Subsidiaries Companies NOT included in the CAD calculation* (Estonia) Swedbank Support OÜ Swedbank Liising AS Swedbank Elukindlustus SE Swedbank Varakindlustus AS * The Swedbank insurance companies are not included according to the Basel 2 capital adequacy rules. Capital base The capital base serves as a buffer against the losses that can arise from risks to which Swedbank Baltic is exposed. Bank s ability to sustain large losses is also to a large extent dependent on the strength of the income statement but also on more qualitative factors such as risk management capabilities and internal governance and control. Capital requirement for credit risks Credit risk refers to the risk that a counterpart is incapable of meeting its obligations and pledged assets do not cover the claims. Credit risk includes concentration risk that includes large individual exposures as well as significant exposures to groups of counterparts whose likelihood of default is driven by common underlying factors, such as the economy, sector, geography, instrument type or other. Credit risk forms the largest part of the total outstanding risk for Swedbank Baltic and is inherent in almost all regular credit products such as loans, leasing, credit cards, guarantees and derivatives. Market risks Exposure to market risks arises from positions that are affected by changes in market risk factors: interest rates, foreign exchange rates and equity prices (or other relevant risk factors such as implicit volatility for options). For capital requirement calculation purposes, the standardized approach has been implemented under Basel 2 capital adequacy rules. Operational risk Operational risk stands for any undesirable impact to business objectives, including direct or indirect financial loss or loss of confidence, occurring in day-to-day business operation, resulting from errors or omissions in internal procedures or systems, or due to human errors or fraud, or from external events. For defining capital requirement to cover unexpected losses from operational risk, Swedbank has implemented the standardized approach under Basel 2 capital adequacy rules in Baltic countries. The required methods have been implemented, such as loss database, risk self-assessment and business contingency planning. Interim report January-September Page 8 of 12

9 Capital base Primary capital (Tier 1) Basel II IRB 30 Sep Basel II IRB 31 Dec 2010 Share capital Share premium Reserves Retained earnings from previous periods Retained earnings (loss) from current period 58-6 Foreign currency translation reserve - 39 Other reserves 2 Less: Intangible assets Total Tier Supplementary capital (Tier 2) Subordinated debt Value adjustments and provisions exceeding the expected loss Supplementary capital (Tier 2) Own funds, total Deductions from own funds Own funds, net Capital ratios Basel II IRB 30 Sep Basel II IRB 31 Dec 2010 Tier 1 capital ratio, %* Tier 2 capital ratio, %** Total capital adequacy ratio * Tier 1 capital divided by total risk-weighted on and off balance sheet items ** Tier 2 capital divided by total risk-weighted on and off balance sheet items Interim report January-September Page 9 of 12

10 Capital requirements Capital requirement for credit risks, standardized approach Basel II IRB 30 Sep Basel II IRB 31 Dec 2010 Central governments and central banks 1 Regional and local governments 3 6 Institutions administered by state authorities, non-profit institutions and associations Credit institutions and investment firms Companies 9 5 Retail exposures 0 0 Past due claims 0 Other assets 7 41 Capital requirement for credit risks, internal ratings based approach Credit institutions and investment firms 1 3 Other companies Other items 3 4 Retail exposures Total capital requirement for credit risk Capital requirement for market risks Foreign exchange risk capital requirement 0 85 Capital requirement for interest rate risk 8 Equity position capital requirement 2 1 Capital requirements for options 1 0 Total capital requirement for market risk 3 94 Capital requirement for operational risks Operational risk standardized approach Total capital requirement for operational risk Total capital requirement Transitional minimum of own funds Total capital requirement for adequacy calculation Interim report January-September Page 10 of 12

11 Note 4 Discontinued operations Swedbank AB undertook changes to its legal structure according to which the three Baltic subsidiaries are now directly owned by Swedbank AB in Sweden, therefore the ownership of the Latvian and Lithuanian banks was transferred from AS Swedbank in Estonia to Swedbank AB in Sweden. The disposal was completed on 1 July.Sale price was EUR 1511 m and the disposal was made at market value and it resulted in a profit of EUR 80 m. Total profit on the sale can be divided into 2 components: gain on the sale of equity investment (EUR 110 m) is classified under other income (discontinued operations) and loss on the adjustment of unrealised foreign exchange differences (EUR 30 m) under Net gains and losses (continued operations). In, the financial results of the sold entities have been consolidated for the period of January to June and are reported as discontinued operations in this interim report. Result for the year from discontinued operations Income statement Jan-Sep Jan-Sep 2010 Total revenues Total expenses Net credit impairments Operating profit Tax expense Profit (loss) for the period Gain on disposal of operations Profit (loss) for the period Net cash flows from discontinued operations Cash flow from operating activities 337 Cash flow from investing activities 3 Cash flow from financing activities Cash flow for the period Cash and cash equivalents at beginning of period Cash flow for the period Exchange differences on cash and cash equivalents 1 Cash and cash equivalents at end of period The net assets of subsidiaries at the date of disposal Latvia Lithuania Total Cash Due from CB Due from banks Loans Securities Other assets Due to banks Deposits Other liabilities Subordinated liabilities Net assets disposed of Attributable goodwill Gain on disposal of operations Total consideration Satisfied by cash Cash inflow arising on disposal Net cash inflow Interim report January-September Page 11 of 12

12 General information Company name Address Liivalaia 8, Tallinn 15040, Estonia Registered in Republic of Estonia Registry code (Estonian Commercial Register) Phone Fax SWIFT/BIC HABAEE2X Internet homepage Audit company AS Deloitte Audit Eesti Report balance sheet date 30 September Reporting period 1 January 30 September Report currency EURO (EUR), millions Interim report January-September Page 12 of 12