The Central Bank of Estonia has published its latest Financial Stability Review, concluding that Estonia’s financial sector remains in a generally good position but that geopolitical tensions, including the war in the Middle East, have increased risks to financial stability. The review says the conflict has raised uncertainty in international financial markets, affected commodity and energy markets, and temporarily made it harder for banks to issue new bonds. In that context, the central bank considers it appropriate to maintain the countercyclical capital buffer at 1.5%. Banks’ resilience continues to be supported by strong capitalisation and large liquidity buffers, even as some lenders have become more dependent on international bond markets to fund lending alongside domestic deposits. The review notes that Estonia’s economy has started to grow gradually and that the financial position of households and businesses has improved, but warns that higher energy prices, concerns about inflation and higher money market rates could weaken borrowers’ debt-servicing capacity and increase problem loans. It also highlights lending-related vulnerabilities, including annual growth of around 10% in loans to real estate and construction companies and in housing loans, rising commercial real estate vacancy, the highest share of debt-funded housing transactions in 15 years, and additional risks from rapid lending growth in Latvia and Lithuania, which account for around a quarter of loans issued by Estonian banking groups. The central bank is considering reducing the cyclical component of the countercyclical capital buffer later this year if the risks from increased lending diminish. The full Financial Stability Review is to be published on the central bank’s website soon.
Central Bank of Estonia 2026-05-13
Central Bank of Estonia keeps countercyclical capital buffer at 1.5% as Middle East conflict raises financial stability risks
The Central Bank of Estonia’s latest Financial Stability Review finds the financial sector remains generally sound, supported by strong capitalisation and liquidity, but notes heightened risks from geopolitical tensions and greater reliance on international bond markets. It highlights lending-related vulnerabilities, including around 10% annual growth in real estate and construction lending and housing loans, rising commercial real estate vacancy, elevated debt-funded housing transactions, and rapid lending growth in Latvia and Lithuania. The countercyclical capital buffer is maintained at 1.5%, with a possible reduction later this year if lending risks ease.