Availability of banking services in Estonia

Interpellations raised by members of the Riigikogu concerning the accessibility of banking services

  1. Why has Eesti Pank not set minimum requirements for the provision of cash and payment services in a decree alongside the technical requirements, in the context of the Emergency Act?
  2. What solutions has Eesti Pank discussed for ensuring the equal accessibility of cash and payment services across Estonia?

The principal position of Eesti Pank

Banking services are important and they need to be accessible to people and companies across Estonia. It is reasonable for services to be provided efficiently and flexibly.

Answer by Governor of Eesti Pank Ardo Hansson to the Riigikogu, 22 September 2014

I understand that people are worried about the accessibility of banking services across Estonia. Eesti Pank does not prefer any one means of payment over any other. Cash is an official means of payment and so Eesti Pank believes that it should be available through flexible solutions everywhere in Estonia.

Eesti Pank works every day to supply Estonian companies and people with cash. We provide a flexible cash service to the commercial banks, giving cash out and taking it in every working day, and in exceptional circumstances we can be even more flexible. Our aim in this is to make sure that cash can circulate smoothly and without interruption and we also manage the state’s cash reserves and test the quality of the cash in Estonia every day. Tomorrow Eesti Pank will release ten-euro notes of the second series into circulation, and these are more secure and longer-lasting than the notes of the first series, with better security features. As Governor of Eesti Pank I can confirm that cash is not going anywhere. I personally like to use cash and I am proud of the quality of the euro cash used in Estonia.

Access to cash is important, and it is a complicated issue that doesn’t have a quick and easy solution. This is why it needs to be discussed, and Eesti Pank is very pleased that we could be part of the working group set up by Minister of Economic Affairs and Infrastructure Urve Palo to look for solutions.

Eesti Pank believes that the issue of access to banking services across Estonia should not be handled under the Emergency Act, but this does not mean that it should be ignored. I will now answer questions about the Emergency Act first, and then questions about access to banking services.

Coming to the first question of the interpellation, as Governor of Eesti Pank I have set minimum requirements for the provision of cash and payment services in case of emergency. The Decree requires that the four largest banks in Estonia restore their normal services to 70% of their normal operational level within 12 hours in the event of an emergency.How the banks restore their services is up to them, but they must describe their recovery plan to Eesti Pank, who then passes the information on to the Ministry of the Interior.

As I understand it, the purpose of the Emergency Act is to see that vital services are restored in the event of an emergency. It is not intended to cover cases where some people do not have day to day access to some important services. Neither is it intended for the purpose of guiding trends in urbanisation and marginalisation. That is an issue for regional policy, not one that requires solving under emergency powers.

Regional policy lies within the domain of the Riigikogu, the government and local authorities. That said, cash circulation is an issue of importance for Eesti Pank, and we wish to be fully engaged in setting policy for cash circulation. This brings me on to the second question in the interpellation, and the position of Eesti Pank on the accessibility of cash and payment services across Estonia.

Eesti Pank’s goals for cash are to supply the commercial banks with sufficient cash resources and to ensure the quality of the cash. The commercial banks distribute the cash among the people and companies of Estonia, in the same way that it is done around the world. Eesti Pank is not aware of any country anywhere where the central bank is responsible for operating the cash network serving people and companies directly. It would require massive investment and fixed costs for Eesti Pank and the outcome would most likely be unwieldy and unclear for the public in their use of money. The commercial banks are much better able to do this and do it more efficiently. However, Eesti Pank is responsible for managing cash circulation, and we consider it important to engage in looking for ways of making sure services can be accessed across Estonia.

Access to banking services is a problem globally, this is not an issue that is unique to Estonia. A parliamentary commission in Australia looked into the matter ten years ago, and similar questions have been discussed in Canada and Sweden and other countries.

The trend is for the number of bank branch offices and cash machines to be cut, and this is happening everywhere in the world in response to advances in technology, trends in demography and changes in consumer preferences. To some degree this is a natural evolution against which it would be pointless to stand. Equally it creates problems of access to banking services, and such problems need to be resolved. Problems may arise particularly for the elderly or for people with impaired mobility, but they may also arise for small businesses or for those who live in the countryside or who do not use the internet. Services should not be provided exclusively to people who use the internet regularly, or only those who live in Tallinn or Tartu.

The advances in technology have led electronic payments and internet banking to become very popular, and this has reduced the need for cash and the need for people to actually go into a bank branch. This has been driven by both supply and demand. Surveys in Estonia show that bank cards are ever more popular as a means of payment, while internet banking is increasingly used for banking transactions, and this trend shows no sign of abating. This means that preferences of consumers themselves are changing, and bank customers need less and less to visit their local bank or to use cash. This is an inevitable consequence of technological progress, and it must be borne in mind throughout this debate.

Demographic changes specifically means urbanisation, and urbanisation is happening here in Estonia too, amplifying the effect of developments in technology. It is inevitable that the decline in customer numbers will be reflected in falling demand, and that falling demand will lead to reduced supply. This applies equally to all forms of service provision, not just banking services. Swedbank has released detailed data to explain why they are closing branches, and they show that the branches being closed were used by only 13% of the clients registered there prior to closure, and that the number of cash transactions in those branches has halved in five years.

The larger commercial banks in Estonia now provide services more efficiently, and one consequence has been the closure of branches and cash machines in rural areas. A comparison with Sweden can be useful here, as that is where the parent banks of our largest banks are based. At the end of 2013 there were 1655 bank branches in Sweden, and a little over half of them were cash-free, which is more than twice the proportion in Estonia, where only 23% are cash-free.

At the start of June I wrote to the leaders of the local government in Läänemaa that Eesti Pank finds that having a single network of cash machines for all the banks would not improve access to banking services in rural areas. This is because it would not be possible for any commercial bank to differentiate its services from those of other banks by offering higher quality if there were a single network. Furthermore, a single network dilutes the responsibility of each individual bank, making it harder for clients or the public to affect the decisions taken by the banks. Cost efficiency will probably become even more important, meaning there are no grounds to expect that access to cash services in rural areas will improve.

I do not conclude that the commercial banks ought to maintain an unnecessarily large network of branch offices and cash machines. There is no real difference here whether such a network is supported by the clients of the banks or by the Estonian taxpayer, in any case it is an unreasonably expensive solution.

That said, the commercial banks do need to explain their vision for access to banking services more clearly than they have done so far, and they should themselves arrive at a solution that is acceptable to society.

In short, the position of Eesti Pank is that the guiding principle for the provision of cash and banking services across Estonia is that it should make economic sense. At the same time, every person in Estonia must have access to banking services, and so we must find alternative flexible solutions in Estonia.

The next question is how those flexible solutions should be supplied. Although this topic is under discussion in the Minister’s working group, I can suggest some options drawn from the experience of other countries, which the banks and the government may want to consider during their discussions on the accessibility of banking services:

  • A cashback system in shops– when paying for their food in shops by card, people can add some extra to the total amount paid and then get that in cash from the shop. For this to work, the commercial banks need to allow shopkeepers to offer this service without charging them any percentage of the cash that is withdrawn. The banks would gain by having a more efficient cash network, shopkeepers would gain additional clients in their shops, and those clients would benefit by being able to withdraw cash more conveniently and securely.
  • State service points– offices providing a wide range of services from the state, the banks and other enterprises, all in one place. This would allow people in rural areas to make payments at regular intervals, and get cash, medicines, letters and newspapers and other services. Cash and medicines would probably need to be ordered in advance, but this would bring the services closer to people. This would make more sense for the state and for companies than maintaining separate offices, each dedicated to only one service.
  • A state tender for services– the state can use a joint tender run by the central government, a state company or local government for provision of banking services in rural areas. The Swedish post and telecoms operator PTS used this approach by running a state tender in 2008 at the request of the government to supply 15 local authorities and 73 districts around the country with cash.
  • Requirements, or best practice guidelines that are generally adhered to, for the closure of bank branches, especially in rural areas– Canada has requirements for closing local bank branches and the banking association in Australia has set out the best practice for closing branches there.
  • Joint work by local governments and banks to train people– this is where banks offer regular training in the use of internet banks in the style of the Vaata Maailma project that ran earlier. Local authorities help in deciding who needs training and bring together everyone interested, and the banks provide the people, computers and knowledge for the courses.
  • Joint work by local governments and banks to provide cash– the commercial banks help local authorities provide cash and payment services to people who have impaired mobility or difficulty using a computer. This could be particularly useful in helping elderly people or people with impaired mobility or vision. Local authorities can establish who in their area has such difficulties and then they can provide help by delivering cash to homes or help with paying electricity bills and so on.

The experiences of other countries can’t simply be copied straight across here, but it is worth discussing them to see whether we could use them in some way to provide cash and payment services to people all across Estonia. I am certain that the commercial banks in particular, though also the state, should be able to provide better solutions than has been the case so far, and I would invite the banks, state institutions and local authorities to take an active role in the discussions about access to banking services. Eesti Pank is of course ready to join the discussion and I do not believe that any solution should be ruled out. Thank you for your attention and I am quite happy to answer any questions you may have.

Source: Bank of Estonia

Most of the production has been harvested

According to Statistics Estonia, by 15 September, 93% of the sown area of cereals, 82% of the sown area of rape and turnip rape, and 54% of the area under potatoes had been harvested in Estonia.

This year, harvesting was carried out in difficult weather conditions. However, the yield per hectare of both winter and spring cereals was bigger than last year. The yield of rape and turnip rape and peas has increased compared to 2013, while the yield of potatoes was smaller than last year.

According to preliminary data, in Estonia, in 2014 cereals were grown on 334,500 hectares, of which 93% has been harvested for grain. One hectare of the harvested area gave on average 3,838 kilograms of cereals, with the average yield per hectare being 3,326 kilograms for rye, 4,084 kilograms for wheat, 3,829 kilograms for barley and 2,696 kilograms for oats. A part of cereals sown for grain will be harvested for green fodder.

Rape and turnip rape were grown on 79,900 hectares. Most of winter rape and winter turnip rape has been harvested, and 70% of spring rape and spring turnip rape has also been harvested already. One hectare of the harvested area gave on average 2,206 kilograms of rape and turnip rape seeds.

Potatoes were grown on 6,300 hectares, of which 54% has been harvested. One hectare of the harvested area gave on average 14,881 kilograms of potatoes.

Source: Statistics Estonia

Estonian Register of Buildings is redesigned

Starting from 6 October the National Register of Buildings www.ehr.ee will be using a redesigned technical platform, in summer it will be additionally possible to submit applications and documents conveniently and electronically through the register.

According to Maria Ševeljova, Head of the Building and Housing Department, the current Register of Buildings is both functionally and technologically outdated as it has remained unchanged already since 2003. „At the first stage of redesigning of the register we are adopting a new technical platform,“ explained Ševeljova. „At the second stage that will be implemented in summer it is planned to introduce web-based register entries, for instance, application for, processing and issue of a building permit or permit for use. The Register of Buildings has clearly lagged behind in this respect compared to other public services.“

Entries of the Register of Buildings will become electronic together with the coming into effect of the Building Code which is currently in the legislative proceeding of the Riigikogu. It should be implemented on 1 July 2015 according to the Draft Act.

Also application forms will be changed from 1 October and no applications will be accepted on old forms from that date.

The Register of Buildings keeps account of buildings. The website of the Register presents technical information on buildings, and documents (including building permits and permits for use) submitted in connection with the buildings. The information has been submitted to the register mainly by local governments. The Register of Buildings is managed by the Ministry of Economic Affairs and Communications. More than 900,000 buildings have been entered in the Register of Buildings, including information on 670,000 buildings.

Source: Estonian Ministry of Economics and Communications

Deposits continue to grow rapidly

Moderate growth in the total volume of loans and leases to Estonian companies and households continued in August. The portfolio grew by 83 million euros from July, and its annual growth rate stood at 3.4%.

The annual growth in the portfolio of corporate loans and leases remained at 5%, the same level as in the previous month. The volume of new short-term and long-term corporate loans and leases in August remained close to the average for this year. Annual growth in the long-term loan and lease portfolio is driven mainly by the real estate sector, but loan growth in manufacturing and the primary sector of agriculture, hunting, forestry and fishing has also been relatively fast. Growth in the short-term loan and leasing portfolio has mainly been led by trade and manufacturing.

The volume of new loans to households remained at the same level in August as in earlier months. New housing loans of 70 million euros were taken out, which is about the same as in the preceding five months. The housing loan portfolio continued to grow moderately and year-on-year growth reached 2.2% in August.

Borrowing activity is aided by low interest rates. The average interest rate for housing loans issued in August remained at 2.5%, as it had been in July. The average interest rate for long-term loans taken by companies was affected by individual large transactions with low interest rates, meaning the average rate fell to 2.3%.

Loan quality remained essentially unchanged from previous months for the banks. The volume of loans overdue for more than 60 days increased slightly in August to make up 1.8% of the loan portfolio by the end of the month. The value of loans overdue by less than 60 days fell slightly at the same time.

Deposits continue to grow rapidly. Corporate deposits grew by 70 million euros over the month and their annual growth rate reached 10%. Household deposits shrank slightly in August because of seasonal factors, but annual growth remained at a rapid 8%. Deposits of the non-financial sector in August were slightly more than 9.5 billion euros.

Source: Bank of Estonia

Author: Taavi Raudsaar, Financial Sector Policy Division of Eesti Pank

Charts see here

General government debt level continued to increase

According to the adjusted data of Statistics Estonia, in 2013 the Estonian general government deficit was 0.5% and the gross debt level was 10.1% of the gross domestic product.

At the end of 2013, the total expenditures of the general government exceeded the revenues by 89 million euros, according to the Maastricht deficit criteria. According to adjusted data,

the central government deficit decreased from 138 million euros at the end of 2012 to 64 million euros by the end of 2013. The deficit of the local government sector increased almost three times over the year, amounting to 89 million euros. The budget of social security funds was in surplus by 64 million euros.

The consolidated debt of the general government (Maastricht debt) rose by 10.3%, reaching 1.9 billion euros by the end of 2013. The overall debt level of the local governments grew by 19.7% compared to 2012. Social security funds did not contribute to the general government debt as at the end of 2013.

The indicators of government finance statistics are compiled on the basis of the new methodology of the European System of National and Regional Accounts ESA 2010. Several changes have been made compared to the preliminary indicators published in spring: the preliminary estimations have been replaced by actual data from the reports and the entire accounting has been transferred to the ESA 2010 methodology.

The majority of the methodological changes did not affect the balance of the general government consolidated budget and the debt level. For example, the changes arising from the capitalisation of research and development and military expenditures were made by rearranging different transactions which cancelled each other out. The change in the classification rules of public sector entities had the most significant impact on government finance statistics, resulting in the redistribution of public enterprises, foundations and non-profit institutions between the corporations sector, non-profit institutions serving households sector and general government sector.

Due to the reclassification, there was an increase in the number of public units assigned to the general government sector as non-market producers. The effect on the consolidated budget balance was positive in most years while the general government debt level increased slightly. The biggest change in debt burden occurred in the local government sector, due to the aggregation of the majority of the non-market producers assigned to the general government sector.

Diagram: Surplus/deficit and debt level of the general government in Estonia

In Estonia the general government sector comprises three sub-sectors: 1) central government (state budgetary units and extra-budgetary funds, foundations, legal persons in public law);
2) local governments (city and rural municipality governments with their subsidiary units, foundations); 3) social security funds (Estonian Health Insurance Fund, Estonian Unemployment Insurance Fund).

Eurostat is going to publish the data on the debt and deficit levels of the Member States according to ESA 2010 on 21 October.

Source: Statistics Estonia

Research: the Euro changeover in Estonia

Estonia changed over from the kroon to the euro in January 2011. This paper analyses the inflationary effect of this event. The analysis is based on the Harmonised Indices of Consumer Prices. The difference-in-differences method is employed where the treated group is Estonia and the control group consists of the other EU member states. The estimation results imply that the inflationary impact of the euro changeover was either insignificant or small in magnitude, depending on which treatment period is considered. The acceleration in inflation mostly occurred in the second half of 2010, during the six-month period prior to the adoption of the euro. Although the actual effect of the euro changeover on inflation was modest, most Estonian citizens felt that the introduction of the new currency increased consumer prices considerably.

Read more from the Bank of Estonia research paper

The Dwelling Price Index increased in 2Q

According to Statistics Estonia, in the 2nd quarter of 2014, the Dwelling Price Index changed by 1.1% compared to the 1st quarter and by 14.5% compared to the 2nd quarter of 2013.

Compared to the previous quarter, the prices of apartments increased by 0.5% and the prices of houses by 2.5%.

Compared to the 2nd quarter of 2013, the prices of apartments have increased by 16.8% and the prices of houses by 8.8%. The prices of apartments increased in all three areas under observation: by 18.0% in Tallinn, by 17.8% in areas bordering Tallinn with Tartu and Pärnu cities and by 7.3% in the rest of Estonia.

Compared to the 1st quarter, the price index of apartments increased by 0.3% in Tallinn,

by 2.8% in areas bordering Tallinn with Tartu and Pärnu cities and decreased by 2.9% in the rest of Estonia.

The Dwelling Price Index expresses the changes in the square metre prices of dwellings purchased by households. The Dwelling Price Indices have been compiled for apartments and houses (including detached, semi-detached and terraced houses).

In the 2nd quarter of 2014, the Owner-Occupied Housing Price Index changed by -4% compared to the 1st quarter and by 10.4% compared to the 2nd quarter of 2013.

The Owner-Occupied Housing Price Index expresses the changes in the prices of the acquisition of dwellings new to the household sector and other goods and services that households purchase in their role as owner-occupiers. The index consists of four parts: acquisition of dwellings, other services related to the acquisition of dwellings, major repairs and maintenance, and insurance connected with dwellings.

The Owner-Occupied Housing Price Index is published on the base 2010 = 100. The time series starts from the first quarter of 2005; major repairs and maintenance are included from the first quarter of 2007 and insurance connected with dwellings is included from the first quarter of 2012. The annual index is calculated as the average of four quarters.

This is the first publication of the Owner-Occupied Housing Price Index by Statistics Estonia. The index will be published quarterly in accordance with the release calendar of Statistics Estonia.

Source: Statistics Estonia

The producer price index of industrial output decreased in August

According to Statistics Estonia, in August 2014, the producer price index of industrial output changed by -0.1% compared to July 2014 and by -1.0% compared to August 2013.

In August, compared to the previous month, the producer price index was more than average influenced by a decrease in prices in electricity, gas, steam and air conditioning supply and in the manufacture of fuel oils, but also by an increase in prices in mining.

Compared to August 2013, the producer price index was more than average influenced by a decrease in prices in electricity, gas, steam and air conditioning supply and in the manufacture of electronic equipment, but also by an increase in prices in the manufacture of wood and wood products and metal products.

Change in the producer price index of industrial output by economic activity, August 2014
Economic activity according to EMTAK 2008 August 2014 –
July 2014, %
August 2014 –
August 2013, %
TOTAL -0.1 -1.0
Manufacturing 0.0 -0.1
Mining 10.5 1.3
Electricity, gas, steam and air conditioning supply -5.7 -9,7
Water supply; sewerage; waste management and remediation activities 0.2 1.0

In August 2014, the export price index changed by -0.5% compared to July 2014 and by -2.6% compared to August 2013.

In August, compared to the previous month, the prices of electricity, agricultural and oil products decreased more than average, whereas the prices of parts and accessories for motor vehicles, and wood and wood products increased more than average.

In August 2014, the import price index changed by -0.7% compared to July 2014 and by -1.5% compared to August 2013.

In August, compared to the previous month, the prices of electricity, oil products and agricultural products decreased more than average, whereas the prices of leather products, wearing apparel and paper and paper products increased more than average.

Source: Statistics Estonia

The digital gap between generations is decreasing

According to Statistics Estonia, in the 1st quarter of 2014, 83% of households in Estonia had access to the Internet at home. The gap between the younger and older population in computer and Internet use is decreasing.

Compared to the same period of the previous year, the percentage of households with an Internet connection has increased by 4 percentage points.  Almost all households with children (98%) and three-quarters of households without children (78%) had the possibility to use the Internet at home. While Internet access at home is the least common in single-person households (71%), the share of those having Internet access at home has grown the most (two-fold) in specifically this group in the previous five years.

Although a fixed broadband connection (wired or wireless) is still the most prevalent among homes with Internet access, the share of fixed broadband connections at homes has decreased in the last two years, giving way to the use of mobile internet connections. In the 1st quarter of 2014, 61% of households with Internet access at home used a mobile internet connection (in 2010, the share was only 6%).

Among persons aged 16–74, 84% have used a computer and the Internet. Compared to the same period of the previous year, the share of Internet users has increased by five percentage points. Although the older population uses computers and the Internet less than the young, the gap between younger and older Internet users has still been decreasing from year to year. 70% of 55–64-year-olds and 44% of 65–74-year-olds had used the Internet, and the share of Internet users has increased the most in those age groups, compared to the previous year (by 7 and 13 percentage points, respectively).

In addition to the growth in the number of Internet users, the frequency of Internet use has also increased. In the 1st quarter of 2014, 86% of Internet users used it daily (80% in 2013). Nine out of ten 16–74-year-olds had recently (in the last 3 months) used Internet banking, sent e-mails, sought information and read the news on the Internet. 60% had participated in social networks, 50% had made telephone calls via the Internet, and one-third had watched television or listened to radio programmes online.

49% of 16–74-year-olds used the Internet for purchasing goods or services. The products and services purchased online the most were: clothes or sports goods, travel and accommodation services, and tickets for concerts, cinema, theatre and other events.

Slightly more than three-quarters of enterprises with 10 and more employees have a website, which is mainly used for presenting products and services. A quarter of enterprises having  a webpage provides information on job openings on their site or offers the possibility to submit job applications online. Online ordering or booking is available in 14% of enterprises having a webpage.

Year by year, the number of enterprises using the ID card has been growing steadily. Estonian enterprises use the ID card mainly for digital signatures but also for user verification in different information systems. Nearly a fifth of enterprises are very satisfied and a quarter of enterprises are satisfied with the e-services supplied by the government.

Statistics Estonia studies the use of information technology in households and among persons aged 16–74 as an independent survey since 2014 (from 2005 to 2013 it was part of the Labour Force Survey). The survey is carried out in the 2nd quarter; the reference period is the 1st quarter. A household is a group of persons who live at the same address and share joint financial resources and whose members consider themselves to be members of one household, while a family is based on family relationships or kinship.

Statistics Estonia has surveyed the use of information technology in enterprises since 2001. In 2014, approximately 3,000 enterprises participated in the survey. The survey involves enterprises with 10 or more persons employed.

The use of information technology in households, by individuals aged 16–74 and in enterprises is studied by statistical organisations in all the Member States of the European Union on the basis of a harmonised methodology.

Source: Statistics Estonia

Estonia attracting foreigners

At a time when in the last five years, Estonian labour market has lost about 40,000 people and, according to forecasts, another 40,000 will be leaving in the next five years, more and more foreigners are being attracted to Estonia in the hope to find better life, writes Äripäev.

One of such foreigners is Finn Pauliina Purkola, owner of creative agency WTF Group, who moved to Estonia together with his husband this summer in order to escape the negativity and pessimism of Finland.

The difference is that people moving to Estonia from the West are usually business owners, while people coming from the East are looking for employment.

Read more from BBN