The central bank noted that: "The banks' profitability, meaning the ratio of profit to assets, was around 60 percent higher than the long term average for 2023."

The rapid rise in profits results both from the rise in the Euro Interbank Offered Rate (Euribor) and in income earned from Euribor-related loans.

Euribor-related contracts comprise the bulk of housing loans, leases and corporate loans in Estonia. 

However the Bank of Estonia says that banks' levels of profitability are to fall in future, as interest expenses are likely, unlike interest income itself, to continue to grow for some time.

The central bank noted that: "So far as banks operating in Estonia go, interest expenses primarily refer to interest paid on deposits."

"The interest paid on demand deposits, meaning funds retained in a current account, is particularly small, but interest rates on time deposit accounts have risen rapidly," the bank continued.

Interest rate rises on time deposits are "unlikely" to rise further, the Bank of Estonia said, "but for so long as there is a significant difference between the interest rates on time deposits and on demand deposits remains, then depositors will place more and more funds in fixed-term deposits. A rise in banks' costs goes hand-in-hand with this."

Estonian banks' total balance sheets came to €41.3 billion at the end of December 2023, while the total volume of money in Estonian banks rose by 9.4 percent, to nearly €3.6 billion, on year to December.

The volume of deposits in banks stood at €29.5 billion in December, a rise of €1.393 billion on year.

The volume of loans in Estonian banks came to €27.422 billion as of year-end 2023, the Bank of Estonia says.

Credit institutions' profits came to €236 million in the final quarter of 2023, compared with €217 million in the third quarter, and €158 million in the fourth quarter of 2022, the central bank adds.

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