Estonian taxy companies set sight on Helsinki

Finland is planning to deregulate its taxi sector and Estonian cab companies are lining up to enter the northern market.

Mati Saar, head of Tulika Takso told Äripäev on Monday that Helsinki is more attractive than Tallinn due its size and importance as a business and tourism hub.

Read more from ERR

Risks to Estonian financial stability

The risks to the functioning of the Estonian financial sector are small, but the external environment is fragile. Despite the recovery of economic growth, the banking sector in the euro area still has relatively large levels of problem loans and low profitability. Before the Single Supervisory Mechanism for banks starts operating at the European Central Bank, comprehensive assessments of assets are being carried out for the biggest banks in the euro area. This should encourage the return of investor confidence in the banks of the euro area and promote the lending needed for economies to recover. One danger is that the events in Ukraine have increased the geopolitical risks, and how this affects the Estonian economy and financial stability will depend on how the risks are realised. The direct exposures of the Estonian financial sector in Ukraine and Russia are small and so the immediate systemic risk is limited.

Estonian economic growth in 2013 was driven by strengthened domestic demand, which draws on growth in household consumption. This was facilitated by a fall in unemployment and stronger real income growth. As economic growth picks up in Europe, the contribution of the exporting sector is expected to increase. Investments are not restricted by corporate finances or bank lending policies, so faster growth in Estonia depends on confidence and a recovery in external demand. If Estonia is to benefit from the recovery in the European economy though, it is important that the increasing wage pressure of recent years does not limit the competitiveness of companies in export markets.

Any deterioration in the external environment risks damaging the outlook for economic growth in Estonia and worsening the loan quality of banks. On top of the risks stemming from the recovery of growth in the euro area, political uncertainty has increased following the events in Ukraine, and with it uncertainty about economic developments in trading partners. This uncertainty about the future can have an immediate cross-border effect, and it can also worsen the outlook for economic growth as investment projects may be put on hold and consumption may be limited. If the Estonian economy were to be subjected to a shock like the 1998 Russian crisis or the 2008 global financial crisis, it would lead to an increase in problem loans. The financial buffers of households and companies mean that the impact of this would now be much smaller. Furthermore, the capital buffers of the banks are significantly larger and Eesti Pank is planning to impose a 2% systemic risk buffer so that such risks can better be managed.

There remains the danger that the risk assessment for the Nordic economies and banks could worsen, which would increase the funding and liquidity risks of the parent banking groups. Nordic bank groups have over 90% of the Estonian banking market, and Swedish banks have around 80%. Continued rises in real estate prices and household borrowing in Sweden have increased the risks to financial stability, as Swedish banks partly finance their lending with funds from financial markets. Steps have been taken in Sweden to dampen the risks by strengthening the capital and liquidity buffers of banks, as it is seen as necessary to balance the funding structures of the banks. Although the Swedish central bank and supervisory authority have noted the need for changes to limit the credit growth of households and to reduce their indebtedness, the impact of such changes may not be sufficient. The possible impact of this risk on the Estonian financial sector is reduced by the fact that the banks operating in Estonia mainly fund themselves from local deposits.

The rapid rise in Estonian real estate prices could lead to riskier borrowing behaviour by households and companies and cause risks to the financial system to build up. Apartment prices were up by over 20% at the end of 2013 and the rapid growth has continued this year. The increase in activity in the housing market can partly be explained by an improvement in household confidence and in the labour market, and by growth in incomes. Low interest rates enhance the risk that the constant strong growth in real estate prices will lead to overly optimistic expectations among households about the sustainability of growth. One factor lowering the risks to financial stability is that households have used a lot more of their own funds in purchasing real estate than they did during the boom and bank loans are being used less. As long as bank lending standards are not eased and the loan growth remains moderate, there is no great risk to financial stability from the rapid rises in real estate prices. However, it will be important that banks continue to follow responsible lending principles when assessing the loan repayment ability of borrowers and requiring them to make sufficient down payments. Eesti Pank is prepared to impose requirements for stricter lending conditions if necessary.

Source: Bank of Estonia

The indebtedness of companies and households has decreased

Low levels of investment and economic activity led to a decline of around 2% in the total stock of corporate debt liabilities in 2013. The structure of debt liabilities did not change much, and foreign debt liabilities accounted for some 36% of the total.

Corporate equity grew strongly in 2013. Although corporate profit growth slowed and large dividend payouts had something of a braking effect on equity growth, equity still grew by close to 7% in 2013. As debt liabilities shrank at the same time, corporate leverage was reduced further.

The debt liabilities of households started to grow gradually in 2013. The revitalisation of the real estate market led household debt liabilities to increase by 0.3% over the year. Even so, higher incomes meant that the indebtedness of households actually shrank. Household financial assets grew by 10% over the year, with the deposits and cash held by households increasing by around 7%.

As in the past four years, the Estonian economy as a whole was a net lender in the fourth quarter of 2013 and in the year as a whole. This means that more funds were invested abroad or returned there than were taken in from abroad.

Net lending (+) / net borrowing (–) is the difference between transactions conducted with financial assets and liabilities during the period under review. Net lending (+) and net borrowing (-) for the whole economy show whether the country as a whole has taken assets from abroad or invested assets there.

NPISHs – Non-profit institutions serving households

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

See graphs here

10 most photographed spots in Estonia

Using crowdsourcing, the Estonian-founded lists the most photographed places in any country of the world. Based on the number of Panoramio photos taken at each place in the world and Foursquare check-ins, it estimates the sightseeing popularity of each spot. These are the top 10 most photographed places in Estonia, according to Sightsmap ..

Tallinn-panorama-by-Markko-Lepik1. Tallinn Toompea viewing platforms


Read more here

Baltic public broadcasters may set up joint Russian TV channel

Lithuanian, Latvian and Estonian public broadcasters are considering a plan to set up a new Russian-language TV channel to offset the influence of Russian channels. Russians represent around a quarter of populations in Latvia and Estonia and 6% in Lithuania.


Read more from BBN

Estonia on top of EU by growth in housing prices

According to Eurostat, Estonia posted the fastest growth in 2013 in housing prices in the EU with the growth of 15,6%.

Among the EU Member States for which data are available, the largest annual falls in house prices in the fourth quarter of 2013 were recorded in Croatia (-14.4%), Cyprus (-9.4%) and Spain (-6.3%), and the highest increases in Estonia (+15.6%), Latvia (+7.9%) and Sweden (+7.0%).

The largest quarterly falls were recorded in Hungary (-1.8%), Spain (-1.3%), Denmark and Italy (both -1.2%), and the highest increases in Latvia (+2.7%), Estonia and Lithuania (both +2.6%) and Ireland (+2.5%).

Read more from BBN and Eurostat

Authorities adopt wait and see attitude towards Russian-owned Krediidipank

Estonian Financial Supervisory Authority says that until the EU adopts sanctions on Bank of Moscow, they will not be taking actions with regard to Krediidipank that is majority-owned by Bank of Moscow, writes Eesti Päevaleht.

Russian state-owned Bank of Moscow is claimed to play a central role in the reorganisation of the banking sector in Crimea by Russia.

Read more from BBN


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