The six registered banks in Estonia include Hansapank, Ühispank, Sampo Bank, Äripank, Krediidipank and SBM Bank. The branch of the Finnish Nordea Bank can also be considered a real bank, in addition the branches of the Latvian Pareks Bank and German Bayerische Hypo- und Vereinsbank operate here. Among the listed banks, three banks plus two branches can be considered small, Nordea and Sampo are middle-sized and Ühispank and Hansapank large banks. Hansapank is the largest bank in the Baltics – it has subsidiaries in Latvia and Lithuania (biggest in Latvia, in Lithuania second biggest in the country), in addition also in Russia (Moscow).

A brief look into history
Today's independent banking in Estonia started in 1988 when the Tartu Commercial Bank commenced its activity. It was the first commercial bank in the Soviet Union. Soon other banks followed. The development of Estonian commercial banking has been quite tumultuous during its short history. The mushrooming of new banks (more than 40 banks in the heyday, though some of them did not start actual activity) was followed by waves of mergers and bankruptcies, during the last 4-5 years the developments have been fairly peaceful.

At first the banks concentrated on currency exchange and speculations. The interest rates were high at first – this encouraged people to deposit money but did not promote taking loans. Bankruptcies did not exactly stimulate depositing and the income of the majority of the population was too small to allow savings to accumulate. In the end of 1997 foreign capital started to actively infiltrate into the Estonian banking – the Swedish SEB-bank and Swedbank acquired holdings in Ühispank and Hansapank accordingly. The following year saw the final big changes in banking – Tallinna Pank was merged into Ühispank and Hoiupank into Hansapank. The last great bankruptcy occurred to Maapank that closed its doors thereafter. The Finnish capital started to invade the Estonian market – Sampo Bank acquired Optiva Bank and the subsidiary of Merita (now Nordea) Bank started to operate actively. In 2005 Swedebank bought the entire Hansapank.

Banking Today
The banking system that started basically from scratch, has grown really fast – by now its share in the economy has risen to 4%. The developments of the recent years have been somewhat more peaceful but it certainly cannot be said that Estonian banking has entered a tranquil era. The last few years have seen the borrowing boom to gather momentum and the popularity of state-of-the-art banking services – internet banking and m-banking – has been continuously growing.

The growth of banks has been gradually slowing down a bit, but they are still going strong – in 2004 the assets of the banks increased by 35.5% amounting to 94,4% of the GDP. Mention has been made of the quite rapid increase in borrowing during the recent years – last year the growth was more than 34%, whereas the number of loans issued to households increased more than 51%. There are several reasons behind such active borrowing activity. 1) the income of the people has reached the level that permits more and more people to take on a loan; 2) interest rates have fallen and therefore borrowing becomes more and more tempting; 3) people have started to actively build and renovate homes – thus the interest in borrowing has grown. The majority of the issued loans have been for building and renovating homes but consumer loans are also gradually gaining popularity – various credit cards have become really widespread. The borrowing activity has not decreased, as there has not been any particular problems with repaying the loans. The reality is that up to now people have been really meticulous in paying back the loans.

As lower interest rates for loans have made borrowing an attraction, things are not so bright for deposits. People are surrounded by numerous attractive possibilities for spending and the pension funding system has also been established. Nevertheless, people’s savings grow fairly quickly (ab. 20% annually).

Various electronic banking services have quickly gained popularity. Almost all bank account holders own a debit card (80% of the population). In addition, more than 240 thousand people own credit cards (18% of the population). Almost all (99.9%) bank transactions are carried out electronically – through card payments, direct arrangements, internet, telephone or m-banking services. In the last year m-banking – paying through mobile phone (paying for parking or bus tickets, etc.) – has undergone really rapid development.

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