The rate of inflation in the Baltic states remains the highest in the euro area, with rates in Estonia expected to have increased from 17.5% in December to 19.8% in January.
However, the banking sector continues to show resilience to external shocks, say analysts. Capital ratios are being maintained, with a common equity Tier 1 ratio of 23.1% at the end of the third quarter, 2022, according to the European Banking Authority.
Non-performing loan (NPL) ratios were very low and are continuing to decrease, reaching 0.6% of total loan volumes by the end of the third quarter, 2022.
Bigbank is of particular note, having decreased its NPL ratio from 6.8% to 2.48% back in 2017, at which time it had the highest ratio among Estonian lenders.
Luminor Bank Estonia also started from a fairly high ratio in 2017 of 4%, and managed to make a significant reduction.
Swedbank Estonia had the lowest average NPL ratio of all Estonian lenders over the course of 2018 to 2021.
The NPL ratio in the Baltic country is now, however, likely to increase due to a worsening economic outlook, increasing unemployment and high inflation, which erodes households’ disposable income. The country’s banks do have sufficient buffers to absorb the potential loan losses.
Despite the hike in the European Central Bank’s base interest rate and the ensuing increase in the Euribor and bank lending rates, no payment issues appear to be emerging in either the corporate or retail sector, according to analysts.
