Swedbank and SEB will hold additional buffers from August

  • From August the commercial banks will have to hold systemic risk buffers of 1% rather than 2%
  • Eesti Pank will require Swedbank and SEB to hold a further buffer of 2% because they are systemically important banks

Changes to the capital buffer requirements for the commercial banks will start to apply from 1 August. Eesti Pank will replace the earlier 2% systemic risk buffer requirement with a 1% requirement for all banks operating in Estonia and will also require Swedbank and SEB, the two largest banks, to hold an additional buffer of 2%.

Eesti Pank introduced the 2% systemic risk buffer requirement for all commercial banks in 2014. The buffer was intended to make the banks hold more capital and so increase their resilience so that they could cope with a sharp drop in the economy, and to reduce the risks that come from the concentration of the structure of the banking sector.

“The systemic risk buffer has so far protected the banking sector against two risks, but from August we will cut this tool into two pieces in effect. We will start to require that all banks hold a buffer of 1% to reduce the risk of a sharp fall in the economy that arises because Estonia has a small and open economy. We will require the two largest banks to hold an additional 2% buffer though, as the banking sector in Estonia is one of the most concentrated in the European Union. Furthermore, the big banks here are vulnerable to the same risks as the structure of their assets and their funding is very similar”, said Ardo Hansson, Governor of Eesti Pank.

From August, the two biggest banks operating in Estonia will have a total capital requirement of 13.5% of total own funds, and all the other banks will have a requirement of 11.5%.

Eesti Pank informed the banks of its intention to change the capital buffer requirements at the end of April.

 

Currently

From 1 August 2016

Minimum own funds requirement

8%

8%

Capital conservation buffer

2.5%

2.5%

Countercyclical buffer

0%

0%

Systemic risk buffer

2%

1%

Systemically important institutions buffer

2%

Total requirement for Swedbank and SEB

12.5%

13.5%

Total requirement for other banks

12.5%

11.5%

The analysis by Eesti Pank of the introduction of the buffer requirements can be found on the website of the central bank.

Source: Bank of Estonia

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