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Estonian Banks the Most Effective in Europe

Estonian-Banks-the-Most-Effective-in-EuropeBanks in Estonia are considered the most profitable in the Eurozone and the European Union as well, according to the European Central Bank. Estonian banks surpass other European banks in terms of return on assets (ROA) and return on owner’s equity (ROE). The return on assets shows how the bank uses the client’s assets and the return on owner’s equity shows how the bank uses the owner’s capital.

Why are Estonian banks this effective?

According to head of financial stability department of Eesti Pank, Jaak Tõrs, there are three reasons why Estonian banks have achieved such success. Compared to banks in other Eurozone countries that were forced to make discounts in order to cover their losses during the crisis, Estonian banks did not feel this pressure. This is the reason they have re-invested the income made from the discounts offered on loans during the crisis which turned into more income in 2013. The third reason invoked by Jaak Tõrs was that costs of an Estonian bank are far lower than the incomes they make.

  However, the biggest advantage of Estonian banks over other European banks is the electronic services the former provide. It is well known, Estonia has invested a lot into its online platform that provides integrated banking services. 98% of payments in Estonia are made online, according to Priit Perens, director-general at Swedbank Eesti. Electronic channel have brought the maintenance costs so low. For the same reason many foreign businessmen want to invest in the financial sector.

The manpower in Estonian banks is also considered to have participated to this success. Shareholders are also considered to be one of the reasons why Estonian banks have kept afloat during the crisis and are thriving now. The two largest banks in Estonia have had businessmen and investors as main shareholder and they were considered to have instilled a high management culture and the orientation towards excellency.

The Estonian banking system

The Estonian banking system is based on the electronic services all banks provide and that have managed to gather together international financial institutions and mobile operator and integrate them into a national network. Estonia uses a currency board system that manages the exchange rate and that allows free movement of capital. The Estonian monetary policies require all banks to have money reserves at all times and also allow for constant selling and buying foreign currency.

We invite our readers to stay with us for more interesting information about the Estonian business environment.




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