As a result of the recent turbulent events in the world’s economy the Estonian financial market was in a nosedive. Two main banks operating in the country, Swedbank and SEB Bank (both belonging to Nordic banking groups), bore remarkable losses.
According to the Bank of Estonia, the central bank, deterioration in the quality of banks’ loan portfolio is believed to have bottomed out in the third quarter of 2010. Nevertheless, threats to the Estonian financial sector are somewhat cushioned by the fact that larger banks in Estonia are part of the Nordic banking groups. All in all, the banks have cut costs and adjusted management procedures.
The Estonian banking regulation derives from the respective EU legislation. However, the prudential ratios set on the Estonian credit institution may be stricter than in the EU. For example, the capital adequacy ratio is set at 10%. In addition, the weight of different risks considered in calculating capital adequacy is sometimes higher than required in the EU directives.
In the last few years there have been numerous amendments to the Estonian financial regulation resulting in the implementation of stricter than previously rules. One of the most important amendments pertains to the Credit Institutions Act that entered into force on January 1, 2011 providing an ultima ratio option to nationalise credit institutions having activity licence from the Estonian Financial Supervisory Authority in case it is necessary to secure stability to the financial system.
Furthermore, on April 5, 2011, the Debt Restructuring and Debt Protection Act entered into force providing a regulation for the restructuring of debts of natural persons which has a direct impact on businesses based on crediting such entities.
Lending and financing in Estonia has proven difficult in the past years but currently banks and other institutions are willing to provide financing to new projects if credit record of lender is trustworthy.
This availability of financing enabled M&A transactions in the country. For instance, on April 4, 2011 Molycorp, Inc., USA and NYSE listed company announced that its wholly owned subsidiary Molycorp Minerals, LLC completed the acquisition of a 90.023% controlling stake in AS Silmet, Estonian company, one of only two rare earth processing facilities in Europe, in a transaction valued at approximately USD 89 million.
Indrek Minka, Of Counsel at Attorneys at Law Borenius, believes that the increase in loan quality should continue in 2011 as necessary cost cuts and management adjustments have been made. “This should improve banks’ profitability which in turn contributes to growth in the banking sector capitalisation,” he said.
The Banking & Finance department at Borenius is known for the creative approach that in addition to solving legal problems has helped clients to discover new business opportunities.
Commenting on the group client base, Mr Minka said: “Our client portfolio includes local investment firms and banks. In numerous cases we have advised international banks. Regularly, our international clients origin from Scandinavia.”
The overview was published in Corpoarte INLT magazine May 2011 edition. Please visit www.emag.corp-intl.com for more information.
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Council Indrek Minka expects growth in the banking sector capitalisation
As a result of the recent turbulent events in the world’s economy the Estonian financial market was in a nosedive. Two main banks operating in the country, Swedbank and SEB Bank (both belonging to Nordic banking groups), bore remarkable losses.
According to the Bank of Estonia, the central bank, deterioration in the quality of banks’ loan portfolio is believed to have bottomed out in the third quarter of 2010. Nevertheless, threats to the Estonian financial sector are somewhat cushioned by the fact that larger banks in Estonia are part of the Nordic banking groups. All in all, the banks have cut costs and adjusted management procedures.
The Estonian banking regulation derives from the respective EU legislation. However, the prudential ratios set on the Estonian credit institution may be stricter than in the EU. For example, the capital adequacy ratio is set at 10%. In addition, the weight of different risks considered in calculating capital adequacy is sometimes higher than required in the EU directives.
In the last few years there have been numerous amendments to the Estonian financial regulation resulting in the implementation of stricter than previously rules. One of the most important amendments pertains to the Credit Institutions Act that entered into force on January 1, 2011 providing an ultima ratio option to nationalise credit institutions having activity licence from the Estonian Financial Supervisory Authority in case it is necessary to secure stability to the financial system.
Furthermore, on April 5, 2011, the Debt Restructuring and Debt Protection Act entered into force providing a regulation for the restructuring of debts of natural persons which has a direct impact on businesses based on crediting such entities.
Lending and financing in Estonia has proven difficult in the past years but currently banks and other institutions are willing to provide financing to new projects if credit record of lender is trustworthy.
This availability of financing enabled M&A transactions in the country. For instance, on April 4, 2011 Molycorp, Inc., USA and NYSE listed company announced that its wholly owned subsidiary Molycorp Minerals, LLC completed the acquisition of a 90.023% controlling stake in AS Silmet, Estonian company, one of only two rare earth processing facilities in Europe, in a transaction valued at approximately USD 89 million.
Indrek Minka, Of Counsel at Attorneys at Law Borenius, believes that the increase in loan quality should continue in 2011 as necessary cost cuts and management adjustments have been made. “This should improve banks’ profitability which in turn contributes to growth in the banking sector capitalisation,” he said.
The Banking & Finance department at Borenius is known for the creative approach that in addition to solving legal problems has helped clients to discover new business opportunities.
Commenting on the group client base, Mr Minka said: “Our client portfolio includes local investment firms and banks. In numerous cases we have advised international banks. Regularly, our international clients origin from Scandinavia.”
The overview was published in Corpoarte INLT magazine May 2011 edition. Please visit www.emag.corp-intl.com for more information.