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IMF: Swedish banks won’t leave Estonia

International Monetary Fund considers that Estonia’s economic situation goes difficult if Swedish banks refused to help their subsidies in Estonia. This scenario is still unlikely, ERR News reports.

According to the information from Eesti Ekspress, IMF also considered what would happen in Estonia devaluated.

IMF considers the main problem of Estonian banking to be that the money which has been gotten in a short period of time, has been put under long-term real estate loans. In the autumn Swedbank faced liquidity problems and it was saved by the capital injection from its holding company. The situation might turn critical is Swedish banks refused to help, but this scenario is unlikely.

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Since Swedish banks have confirmed they support their subsidiaries in Estonia and they’ve kept their promise despite of difficult time, it’s unlikely they’ll stop supporting now, Christoph Rosenberg, the head of IMF’s mission to Central Europe said.

“In addition there is an agreement between Swedish and Estonian central banks, which promises to give additional money when things get difficult,” Rosenberg said.

Estonian central bank said that the speculations as if Swedish central bank’s EEK 14 bln aid package to Estonia was related to difficult situation of Estonian banks are untrue. The agreement also isn’t an exchange for a promise to keep the currency peg.

This was a preliminary agreement, meant to improve Estonian banks’ liquidity in case of financial crisis, Jana Kask, head of the financial sector policy division of Estonian central bank said.

Estonian central bank said they started to prepare the agreement a year ago, but the international financial crisis stopped that process.

Rosenberg said that IMF analyzed possible situation, what would happen if EEK was devalued. It was regular risk scenario.

“One of them was a test, which we make for each country – we’ll see what would happen to banks if exchange rate was changed. It showed that in that case banks have troubles with the loans issued in foreign currencies. It approves once more that changing the currency peg wouldn’t be a good idea for Estonia,” Rosenberg said.

Ivari Padar, the Minister of Finance said that the situation of Estonian banks is stable today. Also IMF emphasized that if Swedbank had liquidity difficulties on September, deposits din’t move out of Estonia, but to other Estonian banks.

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ADD YOUR COMMENT
Those damn Swedish banks just won't leave Estonia :)
~Polpa di Pomodoro [21.03.2009, 08:51]
OK... go to your bank and lets say you have a short term problem.

The bank will offer you a very high interest base rate + eurobor...

Is this help? why are they offering such a high base rate?
~what is support? [20.03.2009, 11:14]
If the swedish banks walk away from the baltics, the local subsidiaries will default on their loans to the parents. So basically this scenario is basically a Swedish/Estonian govt. problem as to who will repay the loans? I do not think the Swedes would risk having a court in Estonia write down the loans in bankruptcy thereby rendering its banks insolvent, nor would the Estonian government want to see its banking sector disappear.

Of course, the IMF cannot talk about the political realities of the situation - it is not their remit.
~DD [20.03.2009, 10:31]
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