The FSA lays down financial buffer requirements for commercial banks at the start of every year. In the conditions of rising base interest rates, which trend is forecast to continue, and the share of bad loans inching upwards in loan portfolios, capital requirements need to be hiked, Kessler said.

"There is no visible crisis statistically. But banks' loan portfolios are showing the first signs of quality of credit going down, both in real estate and consumer credit. These signs are why we require buffers from banks and why we have upped the requirement slightly to prepare for more difficult times," the FSA director said.

Kessler said that while banks already maintain considerable buffers in Estonia, the difficult economic situation necessitates even greater risk management.

"Looking at the economic environment – interest rates are growing and analysts disagree on whether things will get worse or not. But they will a little," Kessler remarked.

The director said that the FSA has separate requirements for each bank. "Both the FSA and the banks themselves analyze their business models, organization and risk control. This work will result in FSA requirements for how much money a bank needs to keep on hand. This ranges from 3-4 percent in the case of small banks all the way up to 9 percent," he said.

Kessler also said that while it is possible to debate whether there is enough competition in Estonian banking, having fewer banks means more effective supervision and fewer risks for society.

"No bank has declared bankruptcy or become insolvent in Estonia this century," he remarked.

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