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

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

Estonians paying less in cash

More Estonians than ever are using debit cards to make payments, instead of cash.

Almost 700,000 card payments are conducted in Estonia every day, over three times more than 10 years ago, the country’s central bank said on Friday.

This forms 75 percent of all internal payments in the country, compared to 65 percent in 2005.

The number of cash withdrawals has also declined by roughly 35 percent.

Estonia’s success as an e-state started largely due to introduction of online banking in the 1990s. Today, practically all banking transactions are done electronically.

Source: ERR via Estonian Review

The volume of deposits has increased by 11 pct over the year

The volume of loans and leases issued to companies and households was 15.5 billion euros at the end of June. Year-on-year, the loan and lease portfolio has grown by 2.9%. Annual growth in the volume of loans and leases to companies decelerated to 2% in June. The areas that saw the fastest growth in corporate borrowing over the past year were trade and real estate development.

The growth of the household loan and lease portfolio accelerated somewhat. Over the year, the volume of housing loans has increased by 3.8% and the volume of other loans by 4.3%. Housing loans worth 81 million euros were issued in June, i.e. about the same amount as in the previous months. Car leases issued to individuals have increased quickly, while car leases to companies have decreased by the same amount. In June, 3% more car leases in total were issued than the same time a year before.

The interest level of loans and leases continues to be low thanks to low base interest rates. The interest rate on both housing loans issued to households and long-term loans issued to companies was 2.2% in June.

The quality of loans issued by banks declined a little, similarly to the previous months. The share of loans overdue for more than 60 days grew to 1.7% of the loan portfolio. The share of loans overdue has increased the most among companies related to agriculture and real estate development.

Companies and households are still actively depositing their funds. Over the past year, the amount of corporate and household deposits in banks’ balance sheets has increased by 10.7%. Corporate deposits have seen a particularly fast rise, as their annual growth increased by 14.2%. Like in the previous months, household deposits have gone up by almost 8% per year.

Banks earned 261 million euros in profit in the second quarter. The greatest factors impacting the change in profits were the dividend income from subsidiaries (229 million euros) and the income tax withheld from the large dividend payment made from the profit of the previous years (45 million euros). Without one-off transactions, the banks earned 77 million euros in profit in the second quarter, which is 6% less than in the second quarter of last year. Profits were supported by an increase in commission income, but decreased because of smaller net interest income and larger administrative expenses.

Source: Bank of Estonia

Author: Jaak Tõrs, Head of the Financial Stability Department

The low investment activity is reflected in the slower growth of corporate debt

The growth of corporate debt decreased at the start of the year. In quarterly terms, the volume of loans taken and bonds issued stopped increasing by the end of the first quarter of 2015, but year-on-year, the growth reached nearly 4%. The volume of long-term loans has decreased because of moderate investment activity, both in case of loans taken from the Estonian financial sector and loans taken from abroad.

Corporate equity decreased somewhat in the first quarter. Reduced profits and relatively substantial dividend payouts meant that reinvested profits also decreased, and the growth of equity, which was fast-paced after the economic crisis, stopped. In international comparison, however, the level of equity in the Estonian corporate sector is quite high.

The incomes and savings of households are still growing faster than their loan liabilities. Higher incomes helped the cash and deposits of households to increase by 9% over the year, to 6.3 billion euros. At the same time, loan liabilities grew by 3.5% and reached 7.8 billion euros. The growth rate of both long-term housing loans and short-term loan liabilities has accelerated somewhat. The indebtedness of households as a ratio of disposable income decreased and as a ratio to GDP remained at 40%.

Like in the past five years, Estonian residents still invested or returned more funds abroad than they took in from there. This was because Estonian residents still saved more in the first quarter than they invested.

Source: Bank of Estonia

Author: Taavi Raudsaar, Economist at Eesti Pank

The average interest margin for housing loans rose in May

The total volume of loans and leases to Estonian companies and households was 3.2% larger in May than a year earlier. The financing portfolio increased by 103 million euros during the month to 15.5 billion euros with around 70% of the monthly increase coming from corporate debt liabilities.

The volume of loans and leases to companies continued to grow stably in May. The total volume of loans and leases to companies grew by 3% over the year and some 759 million euros in new loans and leases were given to companies during the month, about the same amount as a year ago. New long-term loans worth 179 million euros were granted, most of them to companies in trade, real estate or manufacturing.

Annual growth in the volume of housing loans picked up in May to 3.6%. An average of 80 million euros has been issued each month over the past three months, which is around one fifth more than in the same period last year. There was also an increase in other household loans and leases issued in the first half of this year, mainly because of car leases, which have been increasing in volume since December last year and are around 20% up over the year. At the same time there was a fall of about the same amount in the volume of car leases issued to companies.

The average interest margin for housing loans issued by the banks rose. EURIBOR, which is the base interest rate for a majority of housing loans, fell in the first half of this year, but the average interest rate on housing loans rose at the same time. This reflects the efforts of the banks to maintain profitability when interest rates are low. The average interest rate for housing loans issued in May rose to 2.3% and the average interest rate for long-term loans taken by companies was 2.5%.

The share of overdue loans in the loan portfolio remains small. The share of loans overdue by more than 60 days in the loan portfolio increased slightly to 1.6% in May with increases in overdue loans to companies in agriculture, trade and manufacturing.

The deposits of companies and households continued to grow rapidly. The annual growth in the deposits of companies accelerated to 9%, while household deposits grew by an annual 8%. Total deposits stood at 10.1 billion euros at the end of May.

 

Source: Mari Tamm, Economist at Eesti Pank

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