At the sitting, the Riigikogu heard the 2017 Annual Report of the Financial Supervision Authority according to which our economy, and therefore also our financial sector, was doing fine.
Chairman of the Management Board of the Financial Supervision Authority Kilvar Kessler said that we had overcome the crisis, and relatively good times had arrived. “A popular truth has it that the foundation for the following crisis is laid in good times, and at the time no one knows when and how the crisis will manifest itself in the future,” Kessler said. He added that the indicators of the past did not necessarily give the slightest indication for the future. Kessler underlined the deceptiveness of statistics. “General good indicators do not mean that all without exception are doing well,” the speaker noted.
“The Estonian banks and the majority of other regulated financial intermediaries are well capitalised and stand on a strong financial basis. The Financial Supervision Authority has directed them to store enough buffers to cover the damages arising from realisation of risks. Banks have high-quality loan portfolios, the combined relationship of non-life insurers is outstandingly good, and the fixed costs of management companies in relation to net service charge income are decreasing,” the head of the Financial Supervision Authority said. He noted that the general percentage of the productivity of the equity capital of the sector could be expressed by a two-digit number which was a good result in the European context. The reliability standards are met with an ample potential. “In terms of purely financial indicators, the regulated financial sector of Estonia as a whole deserves no less than an excellent mark,” Kessler said.
In his opinion, at the moment, a relatively fast loan growth and an increasing role of technology had to be mentioned as trends. Kessler said that risks arising from the economy and banking in the Nordic countries, namely the household debt burden there, the high price level for real estate, and the sources and deadline for the financing of banks, were deemed to be the main risk to the Estonian financial sector at present in the opinion of the Bank of Estonia. “We in the Financial Supervision Authority are also inclined to agree with this assessment. This means a direct risk to our large banks where their parent undertakings from the Nordic countries wish to support their activities at the expense of the buffers and capital here. Besides, this means an indirect risk where the Estonian economy, which is closely linked to the economy of the Nordic countries, suffers, and that transforms into lower credit quality in the loan portfolios of our banks which in its turn is intensified by the abovementioned relatively fast loan growth,” Kessler noted.
In his words, it is worth noting that our large banks Swedbank, SEB and Luminor are subject to direct supervision by the European Central Bank in the area of capital, as are also the remaining 116 euro area large banks. This means that factual capital supervision regarding the three large banks is exercised by the people of the Financial Supervision Authority, but supervision in the area of capital – additional capital requirements, precepts, obligations regarding the organisation of capital, and approval of financial restoration plans –, is exercised by the European Central Bank.
In his report, Kessler also discussed the issues of resolving the problems related to the activities of the Estonian branch of Danske Bank, Versobank and other banks.
“The central task of the Financial Supervision Authority is to maintain financial stability and to see to the fair and transparent functioning of financial markets as a whole,” Kessler emphasised.
Andres Herkel (Estonian Free Party) took the floor during the debate.
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