Swedbank is the biggest bank in Estonia, followed by SEB Pank, Nordea Pank and Danske Pank, which in Estonia is named “Sampo”. Actually, the last two are legally branches of banks. The four biggest banks account for about 90% of basic banking services. Other banks and branches of banks are small banks that usually operate more intensely in a few fields (usually finance companies, or those mostly offering consumer credit).

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 (now SEB Pank) and Hoiupank into Hansapank (now Swedbank). The 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.

Banking today
The banking system that started basically from scratch, has grown really fast. The deposit boom of 2005-2007 ended in a crisis but, unlike in many other countries, Estonia did not actually have a banking crisis in 2008-2009. No bank had serious problems because of their high capitalization and support from their mother banks. The fast growth in 2005-2007 was due to many factors that were globally common at that time, including an inflow of foreign money, increased incomes and general optimism, which brought down interest rates, and exaggerated hopes for the future. As a result of the crisis, the loan portfolio of banks has decreased (16% from November 2008 until August 2011) because many borrowers have gotten into trouble and there are not very many new borrowers. Loan conditions are not as favorable as they were a few years ago, but the main factor is that possible borrowers are still being careful.

The percentage of “bad loans” (ones that are difficult to collect on) of the whole loan portfolio rose close to 12% in the spring of 2010. Less than 7% of loans involved a delay in refunding of longer than 60 days. The loans given to ventures for developing property were the most problematic, but companies that produced construction materials and goods had it hard, too. Globally, the general population had, and still has, the biggest problem with consumer credit, but in Estonia that percentage has been quite low (at the moment, under 9% of all loans to families).

As lower interest rates for loans made borrowing an attraction, things were not so bright for deposits. During the boom, when earnings were quickly growing, people’s opportunities to buy were also growing and because of low incomes and rather modest wealth, people took advantage of this situation. In 2008-2009, the economic crisis changed peoples’ behavior considerably: people gradually started saving more and, although incomes became smaller during the crisis, their banks deposits continued to grow.

Estonian banking services are mostly electronic: the number of bank cards in Estonia is bigger than the population by more than a third, which means that a lot of people have at least two bank cards. All customers of banks have at least one debit card (there are over 1.4 million of them altogether), and many have credit cards (over 380,000). Almost all bank transactions are carried out electronically, through card payments, Internet banking, direct contracts, standing orders or services of phone banking or m-banking. Estonians using so many banking services is a result of the fact that most wages and almost all government grants are paid directly to bank accounts. The wide use of computers and the Internet have supported electronic banking.

Leasing has been quite popular in Estonia for years. Mostly various vehicles are leased, especially cars, but the leasing of production machinery is a rising trend, too. In the past, people used leasing to buy apartments. About a quarter of leases were by individuals – half of cars, a third of property and a fifth of IT technology. Quite logically, leasing is most popular with transportation companies, but it is also common in the manufacturing industry, commerce, agriculture, forest services, construction and various service establishments (including ones in the fields of administration, vocation, science and technology).

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