The majority of Estonian banks currently offer nearly zero-percent interest rates on term deposits. The exception is Krediidipank, to begin operating under the name Coop Pank in the fall, which is offering clients up to two percent interest.

Along with the change in ownership will come a notable change in the bank's business model. Coop Group has more than than 200 stores in Estonia — including A ja O grocery stores and Maksimarket and Konsum supermarkets — and Coop wants to take advantage of this existing sales network by offering loans to its clients.

"The majority of Estonia's big banks have more demand deposits than necessary," Krediidipank CEO Margus Rink told ERR. As a bank that is essentially launching anew, however, Krediidipank is in a situation in which it needs more money in order to provide loans, which is why it is offering more favorable terms than other banks on term deposits.

"Krediidipank is only in the startup phase in its activity and we are currently in a situation in which more loans go out in one week than deposits come in," he explained. "This in turn leads to the rational reason that in order to attract clients, we need to pay more today. If you look at the balance of large banks, then they have no reason to start paying interest on term deposits as they have a large number of clients; each client has some money in their account and the volume of demand deposits is met."

High interest through the end of 2018

Rink recalled that Estonia's LHV was in the same shoes three years ago, however they have by now attracted enough clients to get by.

"The end of 2018 could be the point for us by which enough new clients have come onboard, bringing their income and pensions to us and making money transfers, that a big enough client base is created from demand deposits that we will no longer have to pay so much interest on term deposits," he explained.

"We are constantly monitoring how much money we need, and [if needed] we will decrease interest as well," Rink confirmed. "Krediidipank is currently offering clients a special rate of up to two percent on term deposits, which has successfully attracted more interested parties to the bank. Our offer was launched on Tuesday and it has clearly been the central subject this week; people are coming to enter into term deposits."

According to the bank director, they are also keeping an eye on other channels as well, including international businesses operating in Germany which collect deposits via the internet and are prepared to offer Krediidipank their services. He noted, however, that the initial payoff involved would be low, as the fees involved would be higher and interests rates wouldn't be much cheaper than what they are paying now.