FSA chief: Banks' profits seem to have come out of thin air
Banks in Estonia saw a sharp rise in profits last year, totaling over half-a-billion euros and without seeming to have to do anything in particular, prompting the head of the Estonian Financial Supervisory Authority (Finantsinspektsioon) Kilvar Kessler to question what banks might do to put back something into the country.
Smaller banks in particular saw a significant growth in revenues and profits, which they say was more the result of their growth in customers rather than interest rate rises.
At the same time, critics have pointed out that while interest rates have indeed risen – driven by Euro Interbank Offered Rate (Euribor) rate rises of 2-2.5 percent so far – these have helped banks more than customers so far, since deposit accounts have not yet seen any discernible rise in interest to holders, at a time of soaring inflation and energy prices.
Kilvar Kessler told ETV news show "Aktuaalne kaamera" (AK) Thursday that the phenomenon has been played out across Europe.
He said: "Currently, we are talking about a rather idiosyncratic situation where, as a result of central banks' monetary policies, credit institutions seem be finding profits out of thin air, which raises the question that, when profits like this are found in that way, how should societies react."
All of Estonia's major banks saw a growth in profits last year, AK reported: Luminor saw a 67 percent rise, across the Baltic region, while Coop Pank's figure was 51 percent. Estonian bank LHV enjoyed a 26 percent rise in profits, while Scandinavian-owned banks Swedbank and SEB saw a 25 percent and 17 percent rise in profits respectively, on their activities in Estonia.
At the same time, while the loan interest rates which support such profits almost doubled in the second half of last year, the average return on deposits remained close to zero.
Commenting on this, Kessler said: "When deposit interest rates are still so low, should a bank also think about giving something back to society, giving something back to its depositors, or to borrowers, by, for instance, reducing loan margins, for example.
"These are themes, I think, that banking should seriously think about, if society is starting to think about them," he continued.
Margus Rink, head of Coop bank, said that his bank had already raised deposit rates last year.
"There has certainly been an effect in that the statistics are above the market, while the big Swedish banks paid no interest at all on time-deposits. When you take the average, it can be seen that no interest has been paid on the deposits," he said.
Madis Toomsalu, head of the LHV Group, meanwhile said that there is often a case where: "At certain decisive points, deposit rates and loan rates move at different speeds," adding that the reverse was also the case – in other words when interest rates start to fall, there is a lag until deposit rates follow suit.
"Ultimately, they reach more or less the same destination," Toomsalu went on.
Both Toomsalu and Rink said the 2022 results at their respective banks resulted from a rise in business volumes, mainly due to their both being relatively small, but growing, banks.
Toomsalu added that the effect of Euribor rate rises last year did not make themselves known until the fourth quarter of 2022, and remained "quite modest" even then.
Rink said that of Coop Pank's revenues of €55 million, less than 10 percent (around €4 million) was the result of the Euribor effect.
"Certainly, in the ensuing years, the effect of Euribor will exert a greater influence on the profits of banks, but last year the business volume of small banks, which are growing rapidly in Estonia, was the main factor," Rink told AK.
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Editor: Andrew Whyte, Merili Nael
Source: 'Aktuaalne kaamera'