The increase in Euribor has raised the interest income on all associated loans. In addition, banks have not had to raise the interest rates paid to depositors, which has made the situation extremely favorable for banks.

Swedbank and SEB, the Estonian banks with the greatest market share, both declined to comment on their expectations for the beginning of the year; both banks referred to their stock market listing and their unwillingness to discuss earnings projections with the public.

This year, LHV's interest income is projected to increase, although the company is not willing to provide exact data before February 14. "In 2022, we issued €1.31 billion in loans to Estonian businesses and €420 million to individuals. Considering that LHV Group's income was limited due to a number of investments made in the previous year, it is probable that LHV's profit will grow this year due to interest income," LHV's communications director, Priit Rum, said.

Coop Bank has said that it intends to expand further but will not disclose its earnings prediction. However, Paavo Truu, the bank's chief financial officer, said that the current atmosphere in Estonia is favorable for banking. "The current interest rate environment is quite favorable, but we can also see that it is especially attractive for large Scandinavian banks, which continue to pay virtually no interest to their customers on demand deposits, for example - this means that Euribor income remains a significant portion of the bank's profit, the majority of which is distributed as dividends to the parent banks abroad," said Truu.

"Coop Bank passes on a large part of the Euribor income to depositors. We expect that the Euribor will continue to be positive in the foreseeable future.  Whether on the long-run Euribor will be 1 percent, 2 or 3, we cannot say, but it will clearly remain positive and we all - banks, depositors and lenders - have to take this new normal into account," Truu added.

Luminor said that the rise in Euribor will add to the bank's income growth; however, the bank highlighted potential dangers.  Luminor's director of public relations, Karel Hanni, said that "raising money from outside has become more expensive as financial markets view Estonia's sovereign risk as much higher than before due to the geopolitical circumstances."

"In addition, the rise in interest rates, coupled with the unpredictability of the economic climate and inflation, will lower customer demand for credit, resulting in fewer new loan applications and a reduction in future income for banks. Banks will also have to take into account the potential impact of the uncertain economic environment on credit quality," Hanni added.

LHV will also assess the need to raise deposit rates. "For example, the interest rate paid on LHV time deposits has risen significantly in a short period of time, and it is now 2.5 percent on one-year time deposits. Banks' borrowing costs are rising in tandem with interest rates, but so is the risk of loan losses," Rum said.

The European Central Bank last raised the deposit facility interest rate to 2.5 percent in early February to combat inflation, with a promise to raise it further in March. The six-month Euribor has now risen to 3.1 percent, with analysts expecting it to exceed 4 percent.

Loans in Estonia are traditionally more expensive than the European average. In the Eurozone, for example, the average interest rate on home loans issued in December was 2.94 percent.

The average interest rate on home loans issued in Estonia was 4.08 percent higher, or two-fifths higher. Only Latvia and Lithuania had higher interest rates in the Eurozone, at 4.32 and 4.35 percent, respectively.

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