Finan a cial a Stab ta ility Rev e iew e 25 April 2012

Transcription

1 25 April 2012 FinancialStabilityReview

2 Main topics Impact of the debt crisis on European financial markets Estonia s economy and financing situation Strength of Estonia s financial sector Financial Stability Review conclusions Financial Stability Review 2

3 Different from the rest of the world, economic activity in Europe is following a downward trend 65 PMI index of larger economies Source: Bloomberg Globaalne Global Euroala area USA Saksamaa Germany Financial Stability Review 3

4 The euro area debt crisis keeps up pressures in the international financial environment 40% Interest rates on 10-year government bonds 30% 20% 10% 0% 01/ / / / / /2012 Kreeka Greece Portugal Iirimaa Ireland Hispaania Spain Itaalia Italy Saksamaa Germany Source: EcoWin Financial Stability Review 4

5 Central banks loans to commercial banks have helped calm markets Eurosystem's balance sheet of monetary policy transactions EU UR billion põhilised main refinancing refinantseerimistehingud operations laenamise marginal lending püsivõimaluse facility kasutamine peenhäälestustehingud net fine-tuning operations (neto) pikemaajalised longer-term refinancing refinantseerimistehingud operations väärtpaberituruprogrammi CBPP and SMP portfolio portfell ja tagatud võlakirjade ost hoiustamise deposit facility püsivõimaluse kasutamine Source: ECB Financial Stability Review 5

6 Interest rates intheinterbank money market have reached a historical low 7% 6% 5% 4% 3% 2% 1% 0% 3-month interest rates in the interbank market euroala area USA Source: EcoWin It is important that growth in additional liquidity contribute to the improvement in credit market conditions Financial Stability Review 6

7 This year s growth in Estonia is more based on domestic demand 40% Y-o-y growth of industrial production and retail sales 30% 20% 10% 0% -10% -20% -30% -40% Tööstus industry Jaemüük retail sales Source: Statistics Estonia Financial Stability Review 7

8 The 2011 rapid growth contributed to the increase in our companies sales revenue and profitability Companies loan repayment ability improved 75% Loan repayment ability of Estonia s enterprises 6 70% 5 65% 4 60% 3 55% 2 50% võlakohustuste debt-to-equity ja (l.s) omakapitali suhtarv (v.s) Sources: Statistics Estonia, Eesti Pank tegevuskasumi Interest coverage ja intressimaksete ratio (r.s) suhtarv (p.s.) Financial Stability Review 8

9 Households financial assets have grown, but low confidence is holding back borrowing activity Household loans and deposits EUR million laenud loans hoiused deposits hoiuste loan to suhe deposit laenudesse ratio (r.s) (parem telg) 160% 140% 120% 100% 80% 60% 40% 20% 0% Financial Stability Review 9

10 The shrinkage in banks loan portfolio is mostly the result of the decline in borrowing Private sector lending stock in Baltic countries, Finland and Sweden before and after the peak (peak level = 100) quarters Sweden Rootsi (I (Q1 kv 1993) Taani Denmark (IV (Q4 kv 2008) Eesti Estonia (III (Q3 kv 2008) Eesti forecast prognoos for Estonia 2013.aasta until end-2013 lõpuni Sources: EcoWin, Eesti Pank Financial Stability Review 10

11 In Estonia, the role of banks in financing companies is more important than on average Corporate debt instruments and volume of Estonia's securities market at end million EUR corporate loans and leases corporate external borrowing borrowing between domestic companies securities market capitalisation stock market capitalisation Sources: Central Register of Securities, Eesti Pank Financial Stability Review 11

12 The rate of contraction in overdue loans is slowing this year Share of loans overdue by more than 60 days in the portfolio and forecast 8% 7% 6% 5% 4% 3% 2% 1% 0% 4,8% 4,3% actual forecast: 2012 spring forecast: 2011 autumn forecast: 2011 spring 3,7% Financial Stability Review 12

13 Banks profitability has recovered at a long-term average level EUR million Banks' quarterly net profit and ratio to assets % net profit net profit without extraordinary financial income return on assets (r.s) 4% 3% 2% 1% 0% -1% -2% -3% Financial Stability Review 13

14 The banking sector s capital stock and and quality have remained at a high level 25% Banking groups' capital adequacy 20% 15% 10% 5% 0% capital adequacy ratio Tier 1 ratio minimum requirement Financial Stability Review 14

15 The share of liquid assets is still very high in the banking sector Volume of banks' liquid assets and ratio to total assets EUR billion % 25% 20% 15% 10% 5% 0% claims on banks claims on the central bank securities liquid assets to total assets (r.s) Financial Stability Review 15

16 Dependence on funding by parent banks has decreased, the share of deposits as a financing source has increased EUR billion Structure of banks' liabilities and loan to deposit ratio % 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% deposits (l.s) funds from banks (l.s) issued securities (l.s) loan to deposit ratio Financial Stability Review 16

17 Economic policy conclusions Financial Stability Review 17

18 Slowing economic growth continues to support financial stability and lending activity In recent months, inflationary pressures in Estonia have been arising from oil prices. Other than that, inflation in Estonia has slowed. However, energy price risesshould not be used as a justification to raise other prices. In addition to income growth, the repayment ability of our companies and households has improved owing to smaller loan commitments and increased financial assets. Although borrowingactivity is boosted by income growth, lower interest rates, and the willingness of banks to lend, uncertainty regarding future developments has nevertheless been hampering borrowing Financial Stability Review 18

19 Risks to financial stability in Estonia have somewhat decreased Business financing activity continues to be favourable The main threat to Estonia s financial sector lies in the euro area debt crisis. In order to solve the latter, euro area governments must proceed with structural reforms and budget balancing. The effective functioning of the ESM plays a role in crisis management. Risks to the stability of Estonia s financial system haveslightly decreased over the past six months. This is confirmed by a decline in banks credit risks and an increase in liquid assets. Owing to deposit growth, banks financing is less and less dependent on parent banks. For the Estonian banking sector, it is important that financial markets continue to trust Nordic banks. This has been ensuredby their strong capitalisation, as well as the Nordic countries relatively good macroeconomic position and fiscal stance Financial Stability Review 19

20 Estonia sfinancialstabilityissupportedbysettinga higher capital requirement for larger banks in Sweden 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Capital adequacy of Estonian banks and Swedish parentbankson thebasisoftier1 ownfunds Range Rootsi of emapangagrupi the ratio of Tier esmaste 1 own funds omavahendite of three Swedish suhtarvu parent vahemik* bank* groups Esmaste Ratio of omavahendite Tier 1 funds in Estonia suhtarv Eestis * Nordea, SEB, Swedbank In Sweden, the capital requirement calculated on the basis of Tier 1 own funds will be 10% for larger banks as from Financial Stability Review 20

21 The role of Eesti Pank in ensuring financial stability To support the financial sector, we providewith other euro area central banks unlimited liquidity to commercial banks. On two occasions, we have provided monetary policy loans with 3-year maturity. The solution of banking crises requires cross-border cooperation with banking groups homecountries. We are constantly improving actions based on the memorandum of understanding on ensuring financial stability and solving the financial crisis between Baltic and Nordic states. We ensure the smooth functioning and recovery ability of clearing and settlement systems. Banks in Estonia have sufficient liquidity and capital, but we are keeping an eye on that together with the Financial Supervision Authority Financial Stability Review 21