OREANDA-NEWS. On November 26, 2007 Deputy Governor of Eesti Pank Andres Sutt made a presentation at the two-day conference "Monetary Policy Challenges Resulting from Rapid Credit Growth in Converging Economies" organised by the National Bank of Poland. Mr Sutt provided an overview of the developments in the Estonian credit market, related monetary policy challenges and measures taken, reported the press-centre of Eesti Pank.

"Estonia's recent years' credit growth has been supported by the very favourable situation in global financial markets and good economic conditions, as well as the strategic decision of Nordic banks to treat the Baltic States as part of their home market. Rapid credit growth has, in turn, contributed to the increasing well-being of households and given rise to optimistic future expectations. Provided that potential risks have been taken into account also for loans taken out during the good times, rapid credit growth will not lead to strong setbacks in the future," said Mr Sutt in his presentation. "Household loan growth has been one of the fastest in Europe. As most of the loans are related to Euribor, the impact of the ECB's interest rate decisions is rather quickly reflected in the Estonian non-financial sector. In order to pursue successful economic policies, monetary policy, financial sector policy and fiscal policy should coincide. Fixed exchange rate assigns an important role to fiscal surplus and flexible labour market," Sutt explained.

When speaking about the financial sector policy, Sutt highlighted some measures taken by Eesti Pank: the 10% capital adequacy requirement, the 100% risk weighting for housing loans instead of the earlier 50%, which resulted in larger capital buffers of banks, and increasing the reserve requirement of banks from 13% to 15%. "In Estonia, household credit growth has declined and the downward trend continues. Slowing credit growth supports the smooth adjustment of the economy and complies with the economic forecast of Eesti Pank," said Sutt. As to financial sector risks, the Deputy Governor of Eesti Pank emphasised the high capitalisation level of the banks operating in Estonia and noted that Eesti Pank considers the risks of banks to be well covered.