financial stability review - eesti pankof estonia's securities market at end-2011 26.04.2012...

Financial Stability ReviewFinancial Stability Review

25 April 2012

Impact of the debt crisis on European financial markets

Estonia’s economy and financing situation

Main topics

26.04.2012 2

Strength of Estonia’s financial sector

Financial Stability Review conclusions

Financial Stability Review

45

50

55

60

65

PMI index of larger economies

Different from the rest of the world, economic

activity in Europe is following a downward trend

26.04.2012 3

Source: Bloomberg

30

35

40

45

2007 2008 2009 2010 2011 2012

Globaalne Euroala USA SaksamaaGlobal Euro area USA Germany


20%

30%

40%

Interest rates on 10-year government bonds

The euro area debt crisis keeps up pressures

in the international financial environment

26.04.2012 4

Source: EcoWin

0%

10%

01/2011 04/2011 07/2011 10/2011 01/2012 04/2012

Kreeka Portugal Iirimaa Hispaania Itaalia SaksamaaGreece Portugal Ireland Spain Italy Germany


Central banks’ loans to commercial

banks have helped calm markets

0

500

1000

1500

EU

R b

illio

n

Eurosystem's balance sheet of monetary policy transactions

26.04.2012 Financial Stability Review 5

Source: ECB

-1500

-1000

-500

0

2007 2008 2009 2010 2011 2012

EU

R

põhilised refinantseerimistehingud pikemaajalised refinantseerimistehingud

laenamise püsivõimaluse kasutamine väärtpaberituruprogrammi portfell ja tagatud võlakirjade ost

peenhäälestustehingud (neto) hoiustamise püsivõimaluse kasutamine

main refinancing operations

marginal lending facility

net fine-tuning operations

longer-term refinancing operations

CBPP and SMP portfolio

deposit facility

Interest rates in the interbank money

market have reached a historical low

2%

3%

4%

5%

6%

7%

3-month interest rates in the interbank market


It is important that growth in additional liquidity contribute

to the improvement in credit market conditionsSource: EcoWin

0%

1%

2%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

euroala USAeuro area

This year’s growth in Estonia is more

based on domestic demand

0%

10%

20%

30%

40%

Y-o-y growth of industrial production and retail sales


Source: Statistics Estonia

-40%

-30%

-20%

-10%

0%

2008 2009 2010 2011 2012

Tööstus Jaemüükindustry retail sales

The 2011 rapid growth contributed to the increase

in our companies’ sales revenue and profitability

Companies’ loan repayment ability improved

4

5

6

65%

70%

75%

Loan repayment ability of Estonia’s enterprises


Sources: Statistics Estonia, Eesti Pank

1

2

3

2005 2006 2007 2008 2009 2010 2011

50%

55%

60%

võlakohustuste ja omakapitali suhtarv (v.s) tegevuskasumi ja intressimaksete suhtarv (p.s.)debt-to-equity (l.s) Interest coverage ratio (r.s)

Households’ financial assets have grown,

but low confidence is holding back borrowing activity

80%

100%

120%

140%

160%

5 000

6 000

7 000

8 000

9 000

millio

n

Household loans and deposits


0%

20%

40%

60%

80%

0

1 000

2 000

3 000

4 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EU

R m

illio

n

laenud hoiused hoiuste suhe laenudesse (parem telg)loan to deposit ratio (r.s) depositsloans

The shrinkage in banks’ loan portfolio is

mostly the result of the decline in borrowing

80

85

90

95

100

105

Private sector lending stock in Baltic countries, Finland and Sweden before and after the peak (peak level = 100)


Sources: EcoWin, Eesti Pank

60

65

70

75

80

-8 -4 0 4 8 12 16 20quarters

Rootsi (I kv 1993) Taani (IV kv 2008) Eesti (III kv 2008) Eesti prognoos 2013.aasta lõpuniSweden (Q1 1993) Denmark (Q4 2008) Estonia (Q3 2008) forecast for Estonia until end-2013

In Estonia, the role of banks in financing

companies is more important than on average

4 000

5 000

6 000

7 000

8 000

EU

R m

illio

n

Corporate debt instruments and volumeof Estonia's securities market at end-2011


Sources: Central Register of Securities, Eesti Pank

0

1 000

2 000

3 000

4 000

corporate loans and leases

corporate external borrowing

borrowing between domestic companies

securities market capitalisation

stock market capitalisation

EU

R

The rate of contraction in overdue loans is slowing this year

4,8%

4,3%4%

5%

6%

7%

8%

Share of loans overdue by more than60 days in the portfolio and forecast


4,3%3,7%

0%

1%

2%

3%

4%

2008 2009 2010 2011 2012 2013

actual forecast: 2012 springforecast: 2011 autumn forecast: 2011 spring

0%

1%

2%

3%

4%

100

200

300

400

500

EU

R m

illio

n

Banks' quarterly net profit and ratio to assets

Banks’ profitability has recovered

at a long-term average level


-4%

-3%

-2%

-1%

0%

-400

-300

-200

-100

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

EU

R m

illio

n

net profit net profit without extraordinary financial income return on assets (r.s)

15%

20%

25%Banking groups' capital adequacy

The banking sector’s capital stock and and

quality have remained at a high level


0%

5%

10%

2008 2009 2010 2011

capital adequacy ratio Tier 1 ratio minimum requirement

15%

20%

25%

30%

3

4

5

EU

R b

illio

n

Volume of banks' liquid assets and ratio to total assets

The share of liquid assets is still very high in the banking sector


0%

5%

10%

0

1

2

2008 2009 2010 2011 2012

EU

R b

illio

n

claims on banks claims on the central bank securities liquid assets to total assets (r.s)

100%

120%

140%

160%

180%

200%

15

20

25

billio

nStructure of banks' liabilities and loan to deposit ratio

Dependence on funding by parent banks has decreased,

the share of deposits as a financing source has increased


0%

20%

40%

60%

80%

100%

0

5

10

2008 2009 2010 2011 2012

EU

R b

illio

n

deposits (l.s) funds from banks (l.s) issued securities (l.s) loan to deposit ratio

Economic policy conclusions


• In recent months, inflationary pressures in Estonia have been arising from oil

prices. Other than that, inflation in Estonia has slowed.

However, energy price rises should not be used as a justification to raise

other prices.

• In addition to income growth, the repayment ability of our companies and

Slowing economic growth continues

to support financial stability and lending activity


• In addition to income growth, the repayment ability of our companies and

households has improved owing to smaller loan commitments and increased

financial assets.

• Although borrowing activity is boosted by income growth, lower interest

rates, and the willingness of banks to lend, uncertainty regarding future

developments has nevertheless been hampering borrowing.

• The main threat to Estonia’s financial sector lies in the euro area debt crisis. In

order to solve the latter, euro area governments must proceed with structural

reforms and budget balancing. The effective functioning of the ESM plays a role

in crisis management.

• Risks to the stability of Estonia’s financial system have slightly decreased over

Risks to financial stability in Estonia have somewhat decreased

Business financing activity continues to be favourable


• Risks to the stability of Estonia’s financial system have slightly decreased over

the past six months. This is confirmed by a decline in banks’ credit risks and an

increase in liquid assets. Owing to deposit growth, banks’ financing is less and

less dependent on parent banks.

• For the Estonian banking sector, it is important that financial markets continue

to trust Nordic banks. This has been ensured by their strong capitalisation, as

well as the Nordic countries’ relatively good macroeconomic position and fiscal

stance.

Estonia’s financial stability is supported by setting a

higher capital requirement for larger banks in Sweden

6%

8%

10%

12%

14%

16%

18%

20%

Capital adequacy of Estonian banks and Swedish

parent banks on the basis of Tier 1 own funds


• In Sweden, the capital requirement calculated on the basis of

Tier 1 own funds will be 10% for larger banks as from 2013.

0%

2%

4%

6%

2008 2009 2010 2011

* Nordea, SEB, Swedbank

3 Rootsi emapangagrupi esmaste omavahendite suhtarvu vahemik*

Esmaste omavahendite suhtarv Eestis

Range of the ratio of Tier 1 own funds of three Swedish parent bank* groups

Ratio of Tier 1 funds in Estonia

• To support the financial sector, we provide with other euro area central

banks unlimited liquidity to commercial banks. On two occasions, we

have provided monetary policy loans with 3-year maturity.

• The solution of banking crises requires cross-border cooperation with

banking groups’ home countries. We are constantly improving actions

based on the memorandum of understanding on ensuring financial

stability and solving the financial crisis between Baltic and Nordic

The role of Eesti Pank in ensuring financial stability


stability and solving the financial crisis between Baltic and Nordic

states.

• We ensure the smooth functioning and recovery ability of clearing and

settlement systems.

• Banks in Estonia have sufficient liquidity and capital, but we are

keeping an eye on that together with the Financial Supervision

Authority.

financial stability review - eesti pankof estonia's securities market at end-2011 26.04.2012...

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