Towards A More Sensible Banking System In Estonia?

The recession of 2008-2010 hit Estonia particularly hard, suffering one of the worst contractions in the EU after several years of extraordinary growth. This can be graphically demonstrated by the fact that, in the peak boom year (2007, just before the crash) banks were prepared to loan out as much through the course of the year as they held in personal deposits (and the total value of loans was about twice that of what was held in deposits).

And people say the banks were reckless?!...hmmm... well they got a lot of properties at knock down prices (since people were unable to keep up with repayments on their mortgages during the recession, the very banks who had given too-easy credit were then getting the houses back and potentially selling them at a profit, thus getting to sell the gold mine and keep the mine, as either Napoleon Hill or W. Clement Stone, I don't remember which, wrote about many years ago). I call it smart myself, don't think they were reckless about their own dealings..

A more recent and relevant truism comes from Robert Kiyosaki - when a bank tells you your home is an asset, they're not lying, they've just omitted to tell you whose asset it is (i.e. the bank's). But I regress...

Today it's very different as the banks reined in their own willingess to grant out loans to something more like a level it should have been in the first place, and loan turnover to February 2011 was only 15% of what they held in deposits.

This was further exacerbated by peoples' willingness to save during the recession years, and total savings (both personal and commercial) in Estonia are today at, I believe, a record level (about 10.5 Billion Euros - in a country of just 1.3 Million people!).

This is slightly puzzling given that inflation towards the end of 2010 and beginning of 2011 was very high (I've been quoted figures as high as 20% though am sceptical - though certainly the lower estimates of 4% seem a bit optimistic too) thus eroding those savings. But there's a natural tendency to hoard here in crisis times, which has served the country well in the past.

Just in case you're wondering where I'm getting these figures from (some of them anyway) or if you're wondering what the hell I'm talking about, and if you can read Estonian, you can see a fuller explanation here..