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Estonia’s banking sector: Facts & Figures

The Estonian banking sector consists of 16 banks of which nine are licensed credit institutions in Estonia and seven are operating as branches of foreign credit institutions. Banking sector assets constitute €24.5 billion equivalent to 117% of Estonian GDP. The Estonian banking sector is dominated by Scandinavian banking groups holding 90% of banking sector assets.

The market is chiefly divided between Swedbank, SEB Bank, Nordea Bank and Danske Bank. LHV Bank, the largest bank based in local capital, holds 3.8% of banking sector assets. Banks are serving 2.2 million customers through 83 bank branches. Estonian customers are operating 1.8 active current accounts per inhabitant and 1.25 active internet bank accounts per inhabitant. Estonian banks have issued 1.4 bank cards per inhabitant, 80% of issued cards are debit cards, and 20% credit cards. Some 60% of retail payments are initiated by bank cards and more than 99% of payment orders have been initiated electronically since 2009. Only 4% of the population receives income entirely or partially in cash.

Banks hold €16.3 billion worth of deposits and operate loan portfolios to the value of €17.7 billion. The growth of deposits in the real sector in recent years has allowed banks operating in Estonia to base their financing mainly on domestic retail deposits. Cashflows from domestic repayments of loans and the increased deposits from the real sector are enough to finance the current loan turnover.

The total value of loans and leases to non-financial companies grew by 7.8% in 2016. The portfolio grew for almost all sectors with the biggest growth coming in the value of loans and leases to real estate and construction companies, which accounted for almost half of all the increase in the corporate portfolio. Growth in corporate loans was supported above all by new long-term loans as 14% more were issued in such loans than a year earlier.

The loan and lease portfolio of households grew at an increasing rate in 2016. The housing loan portfolio grew by 5.2% over the year and 10% more was issued in new housing loans than in 2015. There was also strong growth in car leases, which were up 16%. The portfolio of credit card loans and overdrafts started to increase in the second half of the year.

The average interest rates on new loans did not change substantially in 2016. The average rate for long-term corporate loans issued in December 2016 was 2.2%. Average interest rate of new housing loans also remained practically unchanged at 2.2%.

Quality of the loan portfolio remained good. The value of loans overdue by more than 60 days was a little lower than a year previously at 1.1% of the loan portfolio.

Housing loans account for about 40% of the loans to the non-financial sector, which is slightly above the average for the countries in the EU, but as a share of total assets, the value of these loans is one of the largest in the EU. This reflects the universal banking model used by banks in Estonia, the concentration of the domestic market and the preference of households for home ownership over renting. It also indicates that the operations of banks in Estonia are less diversified than is the average for the EU. Credit growth continues to be supported by very low base interest rates and by the relatively strong competition in the corporate loan market, which has kept interest margins low.

The profitability of the Estonian banking sector has been among the strongest in the countries of the EU. The Estonian banking sector is relatively cost efficient, which may be partly because the expenses of the local units of foreign banking groups can be reflected at group level rather than local level. Profitability is also aided by smaller loan losses than in other countries and quite large spreads between interest income and interest expenses. Net profit earned in 2016 was €357 million and the ratio of net profits to total assets was 1.3%, which is a little lower than in 2015. Net interest income as a ratio to total assets was the same as in 2015. This was supported by a fall in interest expenses, growth in the loan portfolio, and a rise in the average interest margin earned from the loan portfolio.