Bill forces savings and loan associations to become association banks

The joint ministries building in Tallinn.
The joint ministries building in Tallinn. Source: Siim Lõvi /ERR

Draft legislation from the Ministry of Finance would obligate savings and loan associations to reorganize as association banks or close shop. The aim of the amendments is to ensure the protection of members' savings. The Estonian Union of Credit Cooperatives believes this would end a historic business niche between banks and the so-called grassroots level.

The planned amendments follow several cases where savings and loan association bankruptcies have seen members lose a sizable part of their savings in Estonia.

"The aim of going with association banks is for these organizations to fall under the remit of the Financial Supervision Authority and qualify for guarantee fund protection for all deposits," said Toomas Auväärt, deputy desk director for the ministry.

An association bank differs from a traditional bank in that it is owned by its members each of whom has a single vote. An association bank is subject to stricter rules than a savings and loan association and its deposits have a state guarantee of up to €100,000.

"One of the main requirements for an association bank is capital. The sum needed to found an ordinary bank is €5 million. We are considering making an exception for association banks and setting this at €1 million," Auväärt said.

The representative body of savings and loan associations in Estonia, the Estonian Union of Credit Cooperatives, believes the bill would end a long cooperative action tradition in Estonia.

"There are requirements involved which are draconian enough considering the small size of regional savings and loan associations handling members' deposits and loans. They would have to multiply their volumes to become banks, which really isn't realistic," said Uno Silberg, chair of the Estonian Union of Credit Cooperatives.

"We will wait for amendment proposals to point out shortcomings and aspects making it difficult for savings and loan associations to reorganize as association banks. If there is a practical fix that can be used to improve cooperative activity, we are willing to consider it, while the bill does not aim to put an end to cooperative activity," said Priit Lomp (SDE), member of the Riigikogu Economic Affairs Committee.

Data from the Ministry of Finance suggests Estonia has 21 savings and loan associations with 14,000 total members and financial volume of around €100 million.


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Editor: Marko Tooming, Marcus Turovski

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