Estonia’s Banking Sector Regulation: A Look at the Indicators

The Estonian banking sector has experienced significant growth in recent times, with loan stock reaching 31 billion euros by the end of 2021. According to data released by the Estonian Financial Supervision Authority, the sector’s loan growth exceeded its pre-pandemic levels, posting a yearly growth rate of 9.6% and bringing the loan-to-deposit ratio up to 83%.

Key Indicators

• The share of long-term overdue loans declined to 0.38%, down from 0.49% at the end of the third quarter.
• Non-performing loans accounted for 1.1% of the loan stock, a decrease of 0.2 percentage points from three months earlier and 0.6 percentage points from a year earlier.
• The share of loans with payment holidays also declined, falling to 1.3% in January 2022 from 1.6% at the end of December.

Sector Performance

• Long-term overdue loans declined to 0.4% by the end of the fourth quarter, down from 0.6% a year earlier.
• Corporate loans with higher risk (stage II loans) accounted for 12.4% at the end of December, while household loans made up 7.8%.
• The volume of deposits increased by 9.7% in the fourth quarter, below 10% for the first time since the third quarter of 2019.

Challenges and Risks

• The rapid growth in risk assets has put pressure on capital buffers, with the consolidated CET1 ratio falling to 23.3% by the end of the year from 25.6% three months earlier and 27.1% a year earlier.
• The war in Ukraine has increased uncertainty and risks for the sector, although direct loan positions to Russia, Belarus, and Ukraine account for less than 0.01% of total loans.

Conclusion

Despite these challenges, Estonia’s banking sector remains resilient, with indicators showing that it is well-positioned to weather any potential economic shocks. However, the ongoing situation in Ukraine will require close monitoring to ensure that the sector continues to operate smoothly.