Eesti Pank is raising its capital buffer requirement for LHV Pank as a systemically important institution
Eesti Pank is raising its other systemically important institution capital buffer requirement for LHV Pank from the current 1% to 1.5%. The buffer requirement is being raised because of the strong growth in the market share of LHV Pank, and the new requirement will start to apply from the start of 2022.
There are four systemically important banks in Estonia, and the buffer requirement for the other three, which are Swedbank, SEB Pank and Luminor, will remain at 2%.
Eesti Pank assesses the importance of the banks for the financial system each year, and does so using guidelines agreed with the European Banking Authority (EBA). Banks are systemically important when their market share is larger than 3.5%. The assets of LHV Pank and its market share have grown substantially since the previous assessment made a year earlier. The assessment was based on the position at the end of 2020 and found the market share of LHV Pank exceeded the level where the capital buffer requirement should be at 1.5%. In consequence Eesti Pank decided to raise the buffer rate for LHV Pank.
Systemically important banks are those whose uninterrupted functioning is important for the Estonian and European Union financial systems and non-financial economies. The goal of identifying systemically important banks and requiring them to hold capital buffers is to increase the resilience of systemically important market participants and through that of the whole system. The capital buffer requirement also reduces the potential impact on the taxpayer of any such bank going bankrupt.