Banking sector competition to speed up with EU accession

Scandinavian dominance in Estonia's banking sector may end after the country joins the EU, opening up financial markets for potential investors from other member states, an Estonian Central Bank official said last week.

In accordance with the outcome of Estonia-EU talks concluded last year, after EU accession Estonian's financial markets will be open for any investor working in another member state.

"Estonia and the other Baltic states remain an interesting region for banks. Several foreign banks' opening their offices in Estonia is proof of that," Vahur Kraft, head of the Bank of Estonia, told the Postimees daily last week.

Kraft added it was difficult to say how many foreign banks may come to Estonia after the EU accession.

As of January 2003 seven foreign banks from Russia, Latvia, Germany, Sweden and Finland had opened branches in Estonia, according to the Bank of Estonia.

Hansabank, Uhispank, Nordea and Sampo, the largest banks in the country, are controlled by Swedish and Finnish bank groups.

Banking analysts said that the emergence of new players on the banking market would most likely leave retail banking unaffected since the market is quite small and foreign financial institutions are unlikely to build up infrastructure in Estonia from scratch.

Primarily changes will affect the corporate finance and lending, said analysts.

According to the Estonian Foreign Investment Agency, in 2002 about 27 percent of the total direct foreign investment came into the financial sector. Sweden was the leading investor, injecting about 25 billion kroons (1.59 billion euros) into the economy.

However, most of that money went to improvement of services by already existing large Estonian banks.

The transport and communications sector was second with 21 percent, and industry came third with about 20 percent of the total FDI that made about 50 billion kroons in 2002.