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Country Commercial Guides FY 2000: Estonia Report prepared by U.S. Embassy Tallinn, released July 1999 Note*

CHAPTER VIII. TRADE AND PROJECT FINANCING

Description of Banking System

Estonia has the strongest, most developed banking system in the Baltic States. In part this has been due to the autonomy accorded to the Central Bank and its supervision over the country's commercial banks. Estonia's banking sector is closely monitored by the IMF and international risk rating agencies. The country has adopted a universal banking model that allows banks to participate in other financial activities including operating leasing, insurance, brokerage firms.

In 1998 and 1999 there have been bank failures, including some which are probably the result of malfeasance on the part of bank management. Currently the Estonian banking system is dominated by two banking groups: Hansa Bank, the result of the recent merger of Hansa Bank and Hoiupank (Saving Bank) and Union Bank, the result of merger of Union Bank and Tallinn Bank. In all, there are five commercial banks, including a branch of Finnish MeritaNordbanken.

Major Estonian commercial banks service the whole country through their branch networks. They also manage individual subsidiaries that engage in mortgage banking, finance company activities, credit card business, investment operations etc. Commercial banks have extensive foreign networks of branch offices, subsidiaries, consortium banks and representatives offices through which foreign trade payments are effected.

Foreign Exchange Controls Affecting Trading

There are no foreign exchange controls in Estonia.

General Availability of Financing

The Estonian financial market is a typically European environment where banks and financing institutions have the dominant role.

How to Finance Exports/Methods of Payment

In 1997, the "Export Developing Program" of Phare was launched. It will last till June 1999. The implementation of this program will be carried out by the Estonian Trade and Investment Board, formed on the basis of the Estonian Investments Agency. The Ministry exercises the founder's rights. The main goal of the program is to improve the competitive power of the Estonian economy by means of developing export activities in order to prepare Estonia for joining the European Union, including assistance to exporters in penetrating new markets; increasing the efficiency of export promotion services; development of priority sectors; support for the development of the Foundation.

Financing and guarantees for exports are provided by the Government-owned Foundation For Export Credits and Guarantees. Depending on the nature of the goods exported and on the risks of the trading partners, a portion of the export costs must be provided by the company in question. In addition to government activities, commercial banks provide financing for exports, when possible with guarantees. The banks advise their customers on bank loans as well as on loans granted by other credit institutions.

Banks with Correspondent U.S. Banking Arrangements

All Estonian commercial banks have extensive correspondent relationships with U.S. banks -- in every U.S. state as well as in most of the larger financial centers. Further information on correspondent relationship can be obtained from the Estonian Bankers' Association.