S&P Sees Lower Estonian Banking Risks as Deposit Funding Grows

Standard & Poor’s Ratings Services raised its risk ranking for Estonian banks, citing a lower reliance of the Baltic nation’s lenders on funding from their Nordic parents and a stable market environment.

Estonia’s ranking improved to group 5 from group 6 on a 1-10 scale where a lower score is better, S&P said in a Banking Industry Country Risk Assessment report, e-mailed to clients on Feb. 28. Group 5 includes countries such as China, Poland and Turkey, it said.

Estonian banks, including units of Stockholm-based Swedbank AB (SWEDA) and SEB AB (SEBA), have cut reliance on funding from Nordic parents after Lehman Brothers Holdings Inc.’s 2008 collapse burst a property bubble, shut off credit flows and triggered the world’s worst recessions in the Baltics.

“System-wide funding has improved significantly over the past two years,” S&P analysts Regina Argenio, based in Milan, and Sean Cotten, based in Stockholm, said in the report. “We view Estonian banks’ risk appetite as moderate, given their focus on domestic traditional commercial banking activities. Moreover, high concentrated system, dominated by subsidiaries of Nordic banks, provides adequate stability.”

Core customer deposits increased to about 57 percent of total loans at the end of last year from a low of 41 percent three years earlier, S&P said. Net banking-sector external debt had dropped to “about” 15 percent of loans because of a higher domestic savings rate, it added.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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