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High demand for mortgage finance in Estonia encourages EBRD to provide third housing facility
To help meet Estonia's current demand for housing finance, the European Bank for Reconstruction and Development (EBRD) is providing a ten-year DM 12 million (ECU 6.6 million) housing finance facility to Estonia's second largest bank, AS Eesti Uhispank. The facility will enable Eesti Uhispank to provide its private clients with long-term secured loans to purchase, or renovate, their principal private residences in Estonia.
"Long-term funding is still not available to Estonian banks on the international market, despite their improved creditworthiness," said Jonathan Harfield, the EBRD's Resident Representative in Tallinn. "The EBRD's facility will allow Eesti Uhispank to offer longer-term financing at a competitive rate, encouraging home ownership and, in the long term, a stronger private market economy."
Although Eesti Uhispank has dramatically increased its private client deposits, the longest maturity of most of these is one year. The EBRD's facility will enable loans of up to DM 200,000 to be extended for ten years.
Eesti Uhispank has been an EBRD client since 1995, when the Bank extended a DM 17 million line of credit, which is fully disbursed. This latest facility is essential to its strategy of developing its retail business. Eesti Uhispank became the second-largest Estonian bank following a merger with Pohja-Eesti Pank (North Estonian Bank) in April 1997. It has total assets of approximately EEK 6.7 billion (DM 842 million or ECU 465 million) and has a strong presence throughout the country.
The mortgage market in Estonia is approximately EEK 760 million and growing at the rate of between EEK 50 million and EEK 100 million per month. The majority of loans are denominated in Deutsche Marks. This is due to the lack of long-term Estonian Kroon funding, the relatively low interest rate of Deutsche Mark financing and the confidence of Estonian citizens in the currency board linking the Estonian Kroon to the Deutsche Mark. If growth continues at the current pace, the amount of housing loans outstanding should more than double by the end of the year.
Previous EBRD housing facilities in Estonia have been signed with Hansapank and Hoiupank, bringing the Bank's total commitment for housing finance to DM 39 million (ECU 21.5 million). These two banks and Eesti Uhispank together conduct the bulk of Estonia's retail business, including housing loans.
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