Treasury Today Country Profiles in association with Citi


A forward-thinking and ambitious nation, Estonia has promoted both its economic and political ties with the west, since the last Russian troops left the country in 1994. The small economy has managed to assert itself with remarkable aptitude on the international stage and its membership of the Eurozone has helped to boost Estonia’s credibility and popularity with foreign investors.

Map of Estonia

Key facts

Official country name:
Republic of Estonia
Euro (EUR)
Capital city and financial centre:
Other major cities:
Tartu, Pärnu, Narva
Time zone:
UTC +2
1,282,963 (July 2011 est.)
Population growth rate:
0.641% (2011 est.)
GDP per capita (US dollar equivalent):
$19,100 (2010 est)
GDP real growth rate:
3.1% (2010 est)
Government type:
Parliamentary democracy
Head of State:
President Toomas Hendrik Ilves
Political leader:
Prime Minister Andrus Ansip
Top export partners:
Finland, Sweden, Latvia, Russia, Germany, Lithuania and the US
Top import partners:
Finland, Lithuania, Latvia, Germany, Sweden, Russia and Poland

Economic overview

Growth of approximately 8% per year from 2003 to 2007 and low public debt were a result not only of the government’s relatively sound fiscal policies, but also of Estonia’s strong trade network with its overseas neighbours, including Finland, Sweden and Germany: the Estonian economy is highly integrated with the Nordic countries. Following a housing market slump and the global downturn, however, Estonia’s economy entered into a severe slowdown in mid-2008 and the country’s GDP dropped nearly 14% in 2009.

Estonia’s reaction to the changing economic climate was nevertheless impressive, including new labour laws that implemented wage cuts and rapid employment adjustments. Stable economic policies with an intense focus on economic freedom have also enabled high levels of investment and entrepreneurial activity. Rising exports to Sweden and Finland led a more than modest economic recovery in 2010 and GDP growth of 4.9% is forecast for 2011. Unemployment reached 16.9% in 2010 and remains a challenge, but by the end of 2012, this figure is expected to have dropped to 11.5%.

Having joined the European Union in 2004, Estonia has one of the highest per capita income levels in central Europe and the Baltic region. Estonia also joined the OECD in December 2010 and since 1st January 2011 has been part of the Eurozone. At the beginning of July 2011, Fitch upgraded the country’s credit rating to A+ with a stable outlook, saying: “The upgrade reflects Estonia’s solid economic growth performance, exceptionally strong public finances, declining external debt ratios and signs of increasing stabilisation in the banking sector.”

The banking sector

Eesti Pank is the central bank of the Republic of Estonia and a member of the European System of Central Banks. Its primary objective is to maintain price stability. Additional functions of Eesti Pank are to implement the monetary policy determined by the Governing Council of the European Central Bank; to aid the development and promote the stability of the financial system; to regulate currency circulation, contributing to the issuance of the euro; and to consolidate and report on performance statistics of the Estonian financial system. The top ten banks by total assets in Estonia include:

Rank Bank Total Assets (€ 1000)
1 Swedbank 8,836,728
2 SEB 3,641,065
3 Nordea 2,573,328
4 Sampo (part of the Danske Bank Group) 1,780,278
5 Credit Bank 453,867
6 Bank’s non-EU banks 435,504
7 UniCredit 312,664
8 BIG 289,026
9 DnB NORD* 245,911
10 LHV 149,198

*DnB NORD belongs to DnB NOR

Estonia’s banking sector is overseen by the country’s Financial Supervision Authority (FSA). According to the latest statistics from the FSA regarding the depositing activity of the country’s commercial banks, “The volume of deposits in Estonian banks grew by 4.7% in 2010. The share of demand and overnight deposits increased from 45% to 57% in 2010, and the share of term and savings deposits decreased from 53% to 42% of the total deposit volume. Deposits of companies formed the biggest share with 47% of the total deposit volume. The Estonian deposit market is primarily divided between four major banks: Swedbank captured 45% of the deposit market at the end of 2010, SEB Bank 21%, Danske Bank Estonian Branch 16% and Nordea Bank Finland Estonian Branch captured 7% of the total deposit market.” These deposit levels broadly reflect the market share of the country’s leading commercial banks.

The recent European stress tests covered 98% of the Estonian banking sector and all of the banks that were tested passed the Tier 1 capital requirements.

Payments and clearing

System Clearing type Transaction types Value dates Times
TARGET2 RTGS High-value, urgent payments in EUR Settlement in real-time with immediate finality

Cut-off for customer payments = 18:00 EET

Cut-off for interbank payments = 19:00 EET

ESTA Multilateral net settlement Non-urgent, low value domestic payments with a maximum value of €1m Settlement on same-day basis with end-of day finality 17:00 EET but note that there is a clearing cycle every hour from 09.00 to 18.00 EET
  • Payment cards, as with all electronic methods of payment, are extremely popular in Estonia. Debit cards are more popular than credit cards and it is estimated that 1.8m cards have been issued in the country to date.

  • Credit transfers are widely used in terms of volume and value. Payments from corporates are mainly conducted by credit transfer.

  • Initially, the take-up of direct debits was restricted by the fact that the payer and the beneficiary must have their accounts with the same institution. However, the domestic direct debit cross-use system, launched on 14th June 2007, enables direct debit payments to be effected between different banks and allows corporate customers to collect direct debits from their customers. Approximately 7% of payments are made by direct debit.

  • In the B2C e-invoicing space, Estonia is amongst the leading countries in Europe with this method of payment. B2B e-invoicing however is still in its infancy.

  • Cheques have never been popular in Estonia and have now been phased out for day-to-day transactions.

While there is a high level of electronic payment in Estonia, there are no real multi-banking platforms, as yet.

Investment options

  • Bank deposits.

    Time deposits are the most popular short-term investment instrument. They cannot be converted into currency before the end of an agreed upon term – from overnight to year long maturities – without a penalty. Demand deposits accounts offer quite a low interest rate but this may vary between credit institutions.

  • Commercial paper.

    It is available in Estonia and is usually issued with maturities of between three and six months.

  • Money market funds are becoming more popular in the country.
  • Repurchase agreements.

    There is a repo market in Estonia.

Note that:

  • Certificates of deposit.

    The Bank of Estonia has not issued CDs since 2000.

  • Treasury bills.

    The Estonian government has not tended to issue treasury bills, preferring to finance any deficits by borrowing from commercial banks or multilateral agencies.

  • The country operates no foreign exchange controls.

  • Instead of an annual corporation tax, a distribution tax is levied on a company’s profits, at the rate of 21% of the gross amount of the profit distribution for that year.

  • Estonia levies no withholding tax on dividends. Interest is exempt from withholding tax for the most part, but where it is paid to a non-resident company at a rate greatly exceeding market interest rate, a levy of 21% between actual and market rate applies. Unless they meet the EU interest and royalties directive requirements, royalties to non-residents are subject to 10% withholding tax.

  • Transfer pricing.

    The values of the transactions are related to a non-associated person’s transaction under similar conditions, with income tax charged on whatever amendments the Estonian tax authorities deem appropriate for the transaction.

  • Thin capitalisation.

    Estonia has no specific thin capitalisation rules in place.