Estonia’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The Estonian banking sector consists of 16 banks of which eight are licensed credit institutions in Estonia and eight are operating as branches of foreign credit institutions. Banking sector assets constitute €25.2 billion equivalent to 110% 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 and Luminor Bank. LHV Bank, the largest bank based on local capital, holds 7% of banking sector assets. Banks serve 2.2 million customers through 74 bank branches. Estonian customers operate 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. 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 €16.9 billion worth of deposits and operate loan portfolios to the value of €18.1 billion. Loan and lease portfolios of banks grew rapidly in 2017. The banking sector is mainly funded through the deposits of resident clients, though financing from Scandinavian parent companies plays an important role in the funding of some banks. A similar amount of profit was earned as in the previous year, and most banks continued to have high levels of own funds. Changes to income tax law encouraged the banks to pay out more in dividends, and so the capitalisation of the banks will fall in time as their assets increase.

Bank deposits continue to grow faster than debt liabilities – the bank deposits of households rose 10% in 2017. The rise in incomes and in employment has meant the saving rate of Estonian households has been quite high in recent years.

The average interest rates on new loans did not change substantially in 2017. The average rate for long-term corporate loans issued in December was 2%. The average interest rate for new housing loans was 2.3% by the end of the year.

The quality of the loan portfolio remained good. The value of loans overdue by more than 60 days was 0.3 percentage points lower than a year previously, when it was at 0.8% 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 volume 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 €335 million. Profit was mainly aided by the growth in the loan portfolio, which raised interest income, and by the good quality of the portfolio.

Contributor: Enn Riisalu riisalu@pangaliit.ee