How Russia’s invasion of Ukraine affects the economy and banking in Estonia

The resilience of the banks operating in Estonia to a break in trade with Russia, Belarus and Ukraine is very good. Eesti Pank is able to ensure the stability of the Estonian financial sector. The central bank is working closely on this with Finantsinspektsioon, commercial banks and the Ministry of Finance.

• The resilience of the banks operating in Estonia to a break in trade with Russia, Belarus and Ukraine is very good. The banks in Estonia are well capitalised even if they have to cover possible loan losses. The share of corporate loans that are directly related to transactions with Russian businesses is smaller than 1%. The extent of the indirect links of the Estonian financial sector to the Russian market are, however, hard to assess. Providers of investment services, Estonian investors who have invested in Russia, and Russian investors who invested through or in Estonia may be affected.
• A deterioration in the economic climate may see overdue loans increase from their current, very low, level, but they will still remain a long way below where they were during the previous financial crisis. The banks have sufficient capital to cover that amount of possible loan losses. Deposits in Estonian banks have grown very fast in recent years, and so the share of liquid assets at the banks is at its highest level of the past decade. The central bank stands ready to provide liquidity loans against collateral to the banks if needed.
• The deposits of residents of Russia, Ukraine and Belarus are only a small part of the deposits in banks operating in Estonia at below 0.5% of all the non-financial sector deposits at the end of 2021.
• Residents of Russia, Belarus and Ukraine have borrowed little from Estonian banks, at below 3 million euros in total. At the end of 2021, the banks in Estonia had no bond, factoring or lease claims against residents of those countries.
• Estonian investment funds and pension funds have each put a million euros into Russian securities, which is 0.1% of the assets of investment funds and 0.03% of the assets of pension funds.
• There is 1 million euros of the money of residents of Russia in the Tallinn stock exchange, which is 0.02% of the total value of the exchange.
• Cross-border payments with Russia, Ukraine and Belarus are relatively small given the total volume of payments through Estonian banks. Only around 2% of payments made by non-residents in the fourth quarter of 2021 were with those countries.
• The European Union has passed restrictive sanctions to persuade Russia to end its war on Ukraine. All people and organisations must respect the limits set by these sanctions. Responsibility for ensuring that the international sanctions are applied in accordance with the law lies in Estonia with the Financial Intelligence Unit. The sanctions set by the European Union are shown on the EU Sanctions Map website at https://www.sanctionsmap.eu/.

The central bank has sufficient cash to provide Estonia with euros even if companies and people need more cash. Eesti Pank can also get additional cash from the central banks of the euro area if needed.

• The good and sustainable work of the banks in Estonia means that the security of operation of payments and cash circulation is at a very high level. It is not impossible though that there may be short-term interruptions in the operation of ATMs and the functioning of payments, caused by electricity or communications outages resulting from powerful storms or cyber attacks for example.
• Eesti Pank and the larger Estonian banks have plans in place to recover services as fast as possible if there is an interruption to the circulation of cash or the operation of payments. Eesti Pank has sufficient cash stocks to keep the state functioning in a crisis, and can always get additional cash if needed from the other central banks of the euro area.
• Eesti Pank works with the commercial banks to make sure there is access to cash and that payments function even if data communications go down or there are power cuts. Making payments or accessing cash may of course not be as quick and simple in this case as it is normally.

There are some tips that everybody should remember for how to be more ready for an interruption to cash or payment services:

1. Keep enough cash in your wallet, and perhaps have a week’s worth of cash at home to guard against longer interruptions
2. Find out where the nearest bank offices, shops and petrol stations are where you can withdraw cash
3. If possible, have accounts at multiple banks so that you can use the cards of different banks
4. Use different forms of identification, such as your ID card, mobile ID or smart ID, for making payments and online purchases

There are ATMs in towns and larger population centres. The network of ATMs is shown on the map at https://kaart.delfi.ee/. You should first withdraw cash from the ATMs of your own bank. All the ATMs in Estonia are interoperable, meaning that a bankcard from one bank can be used to withdraw cash from the ATMs of all the other banks, though there may be a service fee for this, which you can find out more about from your own bank. You can find the addresses of ATMs on the websites of the banks.

https://www.swedbank.ee/private/home/contacts 

https://www.seb.ee/en/atm-find

https://luminor.ee/contact-us

https://www.lhv.ee/en/where-is#atms

There are some 800 places across Estonia beyond the network of ATMs that provide cash in cooperation with Swedbank. Cash can be withdrawn from the shop tills of Coop, Gross, R-Kiosk, Meie Toidukaubad, and Aldar Market shops, and from Olerex and Terminal Oil service stations. The shops and service stations have more information on the conditions of the service.

• https://www.coop.ee/kauplused  
• https://olerex.ee/era/asukohad-ja-lisateenused   
• http://grossitoidukaubad.ee/en/kauplused/
• https://www.meietoidukaubad.ee/poed-ja-lahtiolekuajad/  
• https://terminaloil.ee/tanklateenused/sularaha-valjamakse/  
• https://aldarmarket.aldar.ee/kauplused/  
• https://rkiosk.ee/poed/  

Holders of bankcards can set for themselves the maximum amount that that card can withdraw from an ATM. For the sake of security, that amount should not be too large. Different banks have different monthly limits on how much cash can be withdrawn for free, and a service fee starts to apply for amounts above that limit. You can find out about the limits and the fees from the website of your bank. A limit on the amount that can be taken from an ATM at one time may be applied in an emergency.

Keep a week’s worth of cash at home so that you can make essential everyday purchases even if ATMs and card payments are not working. You can also get cash from your home bank. You can find the contact details of bank offices and the services they offer from the website of your bank.

ATMs are filled regularly and their turnover is monitored, allowing rapid reaction if they become empty. How they are filled when demand is high depends on various factors, such as the logistics of the bank and the cash transporter, the location of the ATM, and the denominations of the banknotes used in the ATM. ATMs need electricity and data communications connections in order to work. If you have problems withdrawing cash from an ATM, please contact your bank about it.

If you have accounts in multiple banks, try to pay through a different one. It may be that only one bank is suffering from an outage in its services.

Even if payments between banks are interrupted, the payments within banks may still be working, so the money will reach its destination if both parties use the same bank.

If you and the person you are paying both have accounts in a bank that provides vital services, which are Swedbank, SEB Pank, Luminor Bank and LHV Pank, then payments between them will be made through Eesti Pank once a day even in an emergency.

If you can, try to pay with a card from a different bank. If neither card payments nor ATMs are operating, you can find information on the extent and the duration of the interruption from your bank.

Banks under sanctions from the European Union and the USA are prohibited from trading in roubles. Other banks can trade freely and the exchange rate of the rouble is set by the market and by purchase and sales transactions; the exchange rate will fall if a lot of people want to sell large amounts of roubles all at the same time.

Eesti Pank does not exchange currency. If you want to exchange roubles, you should turn to a bank or bureau de change that provides that service. It should be remembered that the exchange rate of the rouble may vary between different exchange points and from day to day more widely than usual.

Exchange for Ukrainian hryvnias is currently only available in Estonia at Tavid currency exchange bureaux. Exchange rates and more information can be found from the Tavid website.

Several Ukrainian banks are also continuing to provide digital payment services for cards and payments despite the war. This means it is worth Ukrainian refugees who have reached Estonia trying whether their bankcards issued by Ukrainian banks work in Estonia. If they work, then those cards can be used for paying in shops and for withdrawing euros in cash. The exchange rate for hryvnias in such transactions is set by the Ukrainian bank that issued the card.

The Estonian state is providing help to Ukrainian refugees, more information can be found from the state crisis information website

Banks in Estonia allowing refugees from the war in Ukraine to open accounts for free and use account services for free, generally for 3-12 months, are LHV Pank, Luminor, Coop Pank,  SEB Pank, Swedbank and TBB Pank.
More details, including a list of the documents needed to open an account, can be found on the website of the Estonian Banking Association.

SWIFT is a global information system that banks use for sending and receiving financial messages between financial institutions. The head office of SWIFT is in Belgium, and its work is organised jointly by the users of SWIFT. In very simple terms, SWIFT is like an extremely secure social network where banks, financial institutions and large companies exchange information amongst themselves about payments that need to be made, and also about securities transactions and other transactions. SWIFT carries out background checks to ensure that the institutions in the system are trustworthy and have been authenticated, meaning their identity is proven and checked.

The Estonian banks also use SWIFT for everyday ordinary interbank payments in Europe, and also for currency exchange and securities transactions. Payments reach recipients in other countries through payment and settlement systems. The banks use SWIFT to exchange data with payee banks and payment systems.
The European Union sanctions mean that SWIFT can no longer be used by seven Russian banks, which are VTB, Bank Otkritie, Novikombank, Promsvyazbank (PSKBI.MM), Bank Rossiya, Sovcombank and VEB Bank. The decision came into force on 12 March, so from that date those banks no longer have access to SWIFT. The decision also applies to subsidiaries of those banks.

The decision means that those banks are excluded from any information exchange through the SWIFT channel. Those Russian banks can no longer submit payment orders through SWIFT to make international payments or otherwise exchange financial messages with financial institutions in other countries.

As the sanctions apply to seven banks, Russia is not entirely cut off from the financial world, and the sanctions do not particularly affect everyday domestic banking within Russia. Russian banks, including those under sanctions, can instead move funds between banks using a correspondent relationship, which is a direct channels for making payments agreed in advance with another bank, or online solutions or even email and fax. These alternative solutions are generally less secure than sending payment orders through SWIFT. Russia also has a local system that is similar to SWIFT and allows indirect access to other payment systems.

Payment transactions with Russia are a small part of the total value of payments that move through Estonia’s banks. Only 1.5% of the cross-border payments of Estonian banks in the second half of 2021 involved Russia. Payments in Estonian may involve more effort for companies and people that settle payments with businesses and people in Russia through the banks under sanctions. The sanctions will probably also affect people in Estonia who receive Russian state benefits through those banks, and people living in Russia who receive benefits from the Estonian state.