Deposit Interest Rates Lower Than Elsewhere in Eurozone
Interest rates for overnight deposits and household deposits are lower in Estonia than anywhere else in the Eurozone, according to statistics from the European Central Bank.
Currently, the average interest rate in Estonia for household deposits with up to one year terms is 0.37 percent, reported Postimees. The next-lowest are those in Luxemburg (0.39 percent), Austria (0.89 percent) and Belgium (0.99 percent).
In the rest of the Eurozone, the corresponding averages are over 1 percent. For instance, they are 4.59 percent in Greece.
Experts say interest rates in Estonia are mainly lower because deposits typically have only two or three month terms, whereas elsewhere in the Eurozone the average term is one year.
"There cannot be very much difference in the deposit interest rates of banks that are in strong Eurozone countries and have a similar credit risk,“ said Nordea's chief economist, Tõnu Palm. "The difference in interest can often simply be attributed to the different time structures.“
For business deposits with up to one-year terms, the average interest rate is 0.35 percent. The only Eurozone countries with lower corresponding rates are Germany, Finland, Luxembourg and the Netherlands.
Rates for overnight deposits are far below the Eurozone average, with an average of 0.02 percent for individuals and 0.05 percent for companies.
The Bank of Estonia's financial stability director, Jaak Tõrs, said deposit interest rates depend on three factors: the ECB's interest rate, a country's banks' ability to borrow, and the local savings level.
"With regard to [a bank's capacity to borrow], Estonia's situation is most similar to that of Finland, where a significant number of banking groups overlap [with Estonia's],“ Tõrs said.
Saving has grown significantly among Estonians in the past year, according to Tõrs, but reduced deposits and borrowing has lowered the loan-to-deposit ratio, decreasing banks' activeness with regard to deposits.
LHV CEO Erki Kilu said banks' loan-to-deposit ratio has decreased from 175 percent to 114 percent since 2008. Banks are therefore financing their borrowing activities mainly with deposits and are not desperate for more capital.
"For that reason banks are not motivated to offer higher interest rates,“ Kilu said.