Baltic, Banks, Financial Services, Loan

"The stalled state of the companies has rather deepened from the beginning of the year," said Priit Perens in an interview in Tallinn on Friday. "When we take for example some producers of construction materials that have been exporting their output, they say today there are no orders. We have not dealt with such problems before, but it is not only an Estonian problem now."

Swedbank last week lowered its forecast for growth in the coming years after profit in the fourth quarter fell 38% because of loan losses in Estonia, Latvia and Lithuania. The bank's net income in Estonia fell 43% to 424 million kroons (34 million US dollars) in the fourth quarter, still representing more than three-quarters of its Baltic profits, repirts LETA/BLOOMBERG.

The risk appetite of Estonian banks "has dropped too much and banks have overreacted to changing circumstances" which may slow economic recovery, the central bank said earlier this week.

"For loan volumes to start growing in Estonia we would need a positive impact, for example from faster-than-expected recovery in Finland and Sweden or an improvement in consumer sentiment," Perens said. "Without that the volume of outstanding loans in Estonia will remain unchanged this year or decline."

Consumer confidence in Estonia fell to a record low in February, spurred by rising unemployment at a three-year high of 7.6% in the fourth quarter.

The authorities should consider following neighboring Finland's example of encouraging spending to boost domestic demand at a time of faltering exports, Perens noted.