The loan and lease portfolio of Estonian companies

  • In Estonia, as in Finland, bank cards are used a lot, but there is relatively little card fraud
  • There were five cases of bank card fraud in Estonia for every 1000 residents of the country, with the loss averaging 150 euros per case
  • There is only one quarter as much internet fraud in Estonia as in other European countries, as stricter security requirements are widely applied here
  • It is important to be careful when using ATMs outside Europe

A report released by the European Central Bank shows that bank card fraud in the the Single Euro Payments Area (SEPA) affected 11.3 million transactions worth a total of 1.4 billion euros in 2013, the highest figures for the past five years. The total value of the transactions affected was 8% higher than a year earlier, and the number of cases of fraud was 25% higher. The frauds mainly occurred over the internet, where online trading is used increasingly.

There were five cases of bank card fraud in Estonia for every 1000 residents of the country, with the loss in each case averaging 150 euros. In the SEPA as a whole there were 20 fraud cases per 1000 residents, while the rate was highest in the UK at 68 cases per 1000 residents.

Number of card fraud cases per 1000 people

Cases of bank card fraud using cards issued in Estonia continue to account for a small share of card transactions, and there were 6200 cases in 2013 with a total value of 950,000 euros. During that same year, 287 million card transactions were made, with a total value of 9 billion euros. The total value of card fraud increased by 8%, and the number of cases increased somewhat faster, but this is in line with the higher incidence of card payments, the total value of which rose by around 8%. Fraudulent transactions accounted for 0.013% of total value, which is one third of the SEPA average, and 0.002% of all transactions, which is one tenth of the SEPA average. Card fraud is generally less common in countries like Bulgaria and Croatia where card payments are used less, but Estonia and Finland stand out for having high rates of card usage and low rates of fraud.

Fraud cases as a share of the value and number of transactions

Card fraud in Europe mainly occurs with payments initiated over the internet. Fraud worth 1.4 billion euros was committed using cards issued in Europe, of which 66% or 958 million euros was internet fraud, 20% or 289 million euros was fraud at card payment terminals, and 14% or 202 million euros was fraud involving ATMs. The value of card fraud committed over the internet was one fifth larger in 2013 than in 2012, while the value of fraud at ATMs was 14% lower and fraud at payment terminals was 18% down. Improved security measures have helped combat fraud at ATMs and card terminals, with chip-based technology that is hard to forge becoming more widespread in cards and terminals, and skimming device detectors being used.

Estonia differs from other European countries in its low level of internet-based fraud. Fraudulent online card transactions worth 390,000 euros were made in 2013, which is one quarter of the amount elsewhere in Europe in the SEPA. Frauds at ATMs and payment terminals caused losses of 560,000 euros. Online fraud may have been low because Estonians do little shopping online, and also because of the 3D Secure card payment security procedures used by Estonian banks. These procedures require card holders making payments online to enter additional security data, making it harder for anyone else to use the card fraudulently. It is important to remember when shopping online that purchases are only secure if the online merchant also uses this security procedure.

While there are few fraud cases involving cards issued in Estonia online or at payment terminals, the value of fraud at ATMs as a share of the total value of card transactions is about the same as the SEPA average. Most of this card fraud occurs outside Europe. ATMs in Estonia are secure because of their chip-based technology, and few frauds are committed within the country.

Card fraud cases as a share of the total value of card transactions

 

Source: Bank of Estonia

Author: Mari Tamm, Economist at Eesti Pank

See graphs here

Estonia stands out for the high rate of card usage

  • In Estonia, as in Finland, bank cards are used a lot, but there is relatively little card fraud
  • There were five cases of bank card fraud in Estonia for every 1000 residents of the country, with the loss averaging 150 euros per case
  • There is only one quarter as much internet fraud in Estonia as in other European countries, as stricter security requirements are widely applied here
  • It is important to be careful when using ATMs outside Europe

A report released by the European Central Bank shows that bank card fraud in the the Single Euro Payments Area (SEPA) affected 11.3 million transactions worth a total of 1.4 billion euros in 2013, the highest figures for the past five years. The total value of the transactions affected was 8% higher than a year earlier, and the number of cases of fraud was 25% higher. The frauds mainly occurred over the internet, where online trading is used increasingly.

There were five cases of bank card fraud in Estonia for every 1000 residents of the country, with the loss in each case averaging 150 euros. In the SEPA as a whole there were 20 fraud cases per 1000 residents, while the rate was highest in the UK at 68 cases per 1000 residents.

Number of card fraud cases per 1000 people

Cases of bank card fraud using cards issued in Estonia continue to account for a small share of card transactions, and there were 6200 cases in 2013 with a total value of 950,000 euros. During that same year, 287 million card transactions were made, with a total value of 9 billion euros. The total value of card fraud increased by 8%, and the number of cases increased somewhat faster, but this is in line with the higher incidence of card payments, the total value of which rose by around 8%. Fraudulent transactions accounted for 0.013% of total value, which is one third of the SEPA average, and 0.002% of all transactions, which is one tenth of the SEPA average. Card fraud is generally less common in countries like Bulgaria and Croatia where card payments are used less, but Estonia and Finland stand out for having high rates of card usage and low rates of fraud.

Fraud cases as a share of the value and number of transactions

Card fraud in Europe mainly occurs with payments initiated over the internet. Fraud worth 1.4 billion euros was committed using cards issued in Europe, of which 66% or 958 million euros was internet fraud, 20% or 289 million euros was fraud at card payment terminals, and 14% or 202 million euros was fraud involving ATMs. The value of card fraud committed over the internet was one fifth larger in 2013 than in 2012, while the value of fraud at ATMs was 14% lower and fraud at payment terminals was 18% down. Improved security measures have helped combat fraud at ATMs and card terminals, with chip-based technology that is hard to forge becoming more widespread in cards and terminals, and skimming device detectors being used.

Estonia differs from other European countries in its low level of internet-based fraud. Fraudulent online card transactions worth 390,000 euros were made in 2013, which is one quarter of the amount elsewhere in Europe in the SEPA. Frauds at ATMs and payment terminals caused losses of 560,000 euros. Online fraud may have been low because Estonians do little shopping online, and also because of the 3D Secure card payment security procedures used by Estonian banks. These procedures require card holders making payments online to enter additional security data, making it harder for anyone else to use the card fraudulently. It is important to remember when shopping online that purchases are only secure if the online merchant also uses this security procedure.

While there are few fraud cases involving cards issued in Estonia online or at payment terminals, the value of fraud at ATMs as a share of the total value of card transactions is about the same as the SEPA average. Most of this card fraud occurs outside Europe. ATMs in Estonia are secure because of their chip-based technology, and few frauds are committed within the country.

Card fraud cases as a share of the total value of card transactions

 

Source: Bank of Estonia

Author: Airi Uiboaid, Eesti Pank Payment and Settlement Systems Department

See graphs here

Estonian wage growth accelerated

• Monthly gross wages amounted to 1,082 euros, +5.8%, yoy, in Q2.
• At the same time, net wages were up by 7.3% in real terms because of 0% inflation and lower labour taxes.

The growth of gross wages accelerated from 4.5% in Q1 to 5.8% in Q2. Irregular bonuses and premiums increased by 2.9% per employee and contributed to the growth of wages by 0.1 percentage points.

Wages increased in almost all sectors, except for construction which has been hit by low demand. Construction volumes have decreased for two years by now. The largest increases in average monthly wages took place in sectors that sell their products and services mainly in the domestic market, such as real estate, agriculture,  tourism, entertainment, education, and healthcare.

Households’ real purchasing power will grow markedly this year. Although the growth of gross wages will slow a bit compared to last year (+5% in 2015, according to our forecast), smaller labour taxes and deflation will result in a remarkable surge in the households’ purchasing power. Net wages were up by 7.1% in real terms in the first half of the year.

A rise in wages and social benefits will support private consumption, which will be the biggest contributor to GDP growth in 2015. Consumption is a thankworthy support to Estonia’s economic growth as exports and investments remain weak. Consumption-fuelled growth cannot last long, however. Therefore, if export sales will not improve, the growth of wages will slow.

Source: Swedbank

Unemployment decreased further

• In Q2, employment up by 1.7%, yoy, and unemployment rate down to 6.5%.
• In 2016, employment is expected to fall a bit.

Estonia’s labour market tightened further in the second quarter, but at a slower space. The annual growth of employment slowed from 2.9% in Q1 to 1.7% in Q2. The number of inactive and unemployed declined compared to last year. The inactivity decreased the most among the retirees and those studying at school or university. Unemployment rate decreased to 6.5% in the second quarter (7.0% in Q2 2014).

The Estonian Unemployment Insurance Fund’s data shows that unemployment has declined at a slower space in recent months. Seasonally adjusted figures show even a slight increase in unemployment in Q2. Unemployment rate has reached a level where an additional decline of the rate is already difficult. There are around 44 000 unemployed in Estonia currently, out of which 11 000 have been looking for a job for more than 2 years. The number of people who have become unemployed recently, has grown. Some sectors, who face weak export demand and low output prices, find it hard to keep up with current wage growth.

Employment will grow this year due to the labour registration obligation, which will push up official employment statistics in the first half of the year. Also, strong consumption supports employment in the services sector. In 2016, employment is expected to fall a bit because of a lower supply and demand of labour. More expensive labour encourages investment in machinery. Some enterprises might decrease the number of employees because of low (export) demand, i.e., agriculture and specific sectors of the manufacturing industry. Unemployment rate is expected to remain low, however, although it might increase marginally next year due to decreasing working-age population and problems in certain sectors.

Source: Swedbank

The fall in exports to Russia reduced GDP growth

The flash estimate from Statistics Estonia shows that the Estonian economy grew by 1.9% over the year to the second quarter, and by 0.8% over the quarter, adjusted seasonally and for the number of working days. The growth in manufacturing output in recent months and figures for exports had indicated that the economy grew more slowly than the flash estimate showed, but the flash estimate indicates that while exports did act as a brake on growth, they did so by less less than the amount added by domestic consumption.

Exports mainly declined because demand in Russia is weak and exports to other markets have not been able to compensate fully for this (see Figure). The index of European economic confidence strengthened again for the second consecutive quarter. However, there are few areas of the Estonian economy that are able to benefit quickly from the improvement in the European economy and increase exports, as traditional target markets for exports by Estonian companies have been faring less well.

Exports to Russia dropped by one third in the second quarter, which reduced GDP growth by around one percentage point. Exports to Russia fell by less than they did in the first quarter, when they halved. Exports to Russia largely consist of products from other countries and so the main impact of the reduction in exports was felt by companies providing intermediation services and transport companies. The rouble has continued to slide in recent weeks, making it likely that Russian demand for imported goods will remain low.

Although manufacturing output declined, the sector still made a positive contribution to GDP growth. This means that the value added of manufacturing industry must have grown, with fewer inputs being used for a similar volume of output. Wood production has boosted output from manufacturing, and has grown relatively stably in recent years. The fall in the price of energy meant that the energy industry and oil production had a negative impact on industrial output in the second quarter.

Although wages and household incomes have started to grow more slowly, retail sales and consumption have continued to grow rapidly. Available data on corporate financial results for the second quarter indicate that major investments were made in the second quarter, but they are likely to have had a one-off impact on economic growth. There is more spare production capacity in most sectors than there was before the economic crisis of 2008, and production can be increased without major investment. Spare capacity shrank during the second quarter however, meaning there was probably an increase in the need for investment in growing sectors.

Source: Bank of Estonia

Author: Kaspar Oja, Economist at Eesti Pank

Deflation continues in Estonia

• Consumer prices dropped further in July
• Cheaper energy prices behind the decline in prices
• Inflation expected at -0.2% in 2015 (-0.1% in 2014)

Consumer prices decreased further in Estonia in July. CPI fell by 0.4%, month on month, and 0.3%, year on year. Consumer prices declined due to lower energy prices. Motor fuels were 12%, electricity 7%, heat energy 4%, and natural gas 20% cheaper than one year ago. On global markets, crude oil price was 38% lower than one year ago in EUR (-50% in USD, yoy).
Due to cheaper energy prices, deflation is expected to continue in the coming months. According to our estimates, CPI is expected to decline by 0.2% in 2015, after a marginal drop of 0.1% in 2014.

Cheaper prices benefit consumers but put additional pressure on producers. After the first six months of this year, producer prices in the industry have declined by 1.7%, year on year. During the same time period, export prices have shrunk by 3.8% and import prices by 3.3%. The decline in prices has been caused by modest demand on world markets, as well as an oversupply of commodities. The large drop in export and import prices in Estonia was caused by cheaper oil prices, which supressed the prices of Estonia’s petroleum products and, to a smaller extent, chemical products.

Source: Swedbank

Private clients make 85 pct of all domestic payments

A daily average of one million cashless payments were made in Estonia in the second quarter of 2015, with a total turnover of 393 million euros. The number of cashless payments was 5% higher compared to the same period a year ago, but the turnover was 8% less. The number of cashless payments has kept increasing over the past ten years, but turnover has been a lot more volatile, since it depends on both the general economic activity and, to a certain extent, the activity of larger individual companies. Private clients make 85% of all domestic payments, but it only makes up 9% of the total turnover of payments. Around one fifth of the cashless payments made in Estonia are settled using the interbank retail payments system STEP2.

A daily average of 116,000 domestic payments were made in the second quarter of 2015 between banks using STEP2, with a total turnover of 144 million euros. The number of payments was up 7% from the same time a year ago, while turnover increased 1% year-on-year. Although the majority of the payments are made within one bank, interbank payments have steadily made up 20-24% of all domestic payments over the past ten years. An average of 12,000 payments a day were made from Estonian banks to other countries using STEP2. Payments were made to 34 countries, with most of them going to Finland and Germany (a total of 31% of all cross-border payments).

TARGET2 express transfers, which transfer money from one bank to another in up to 15 minutes, are also used to send payments to another bank.1 This option is still not very widely used in Estonia: only 100 domestic express transfers per day were made by bank clients in the second quarter.

Private clients tend to use bank cards for purchases more and more. In the second quarter of 2015, private clients made 667,000 card payments every day, which is more than triple the number of card payments made in 2005. The share of card payments among all domestic payments made by private clients was 75% in the second quarter, while ten years ago it was 10% smaller. Private clients are withdrawing cash less and less frequently. Ten years ago, private clients withdrew cash from ATMs an average of 137,000 times a day, but in the second quarter of 2015, that number had dropped to 103,000 (117,000 times a day in the second quarter of 2011 and 108,000 times a day in the same period in 2013).

Among other cashless methods of payment, private clients use internet bank payment orders the most. An average of 109,000 internet bank payment orders per day were made in the second quarter, which is 1.7 times more than ten years ago. The share of internet bank payment orders among domestic payments has decreased, though: from 19% ten years ago to 12% now. In 2005, the third most important cashless method of payment was direct debit (10%). Now, however, e-invoice standing orders make up 6% of all cashless methods of payment. Payments made through a bank link reached 4% in the second quarter, while the share of other cashless methods of payment was 1% or less.

Read more from Bank of Estonia website

Author: Tiina Soosalu, Eesti Pank Payment and Settlement Systems Department

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