Andres Trink: During good times we have to prepare for bad times!
Today, on May 31, 2005, ANDRES TRINK, Chairman of the EFSA Management Board, briefed the Riigikogu on the agency's 2004 activities and the state of the Estonian financial market.
Andres Trink focused his presentation on the rapid growth of the financial services market as well as consumer expectations.
Discussing lending issues, Trink pointed out the sharp upward trend in household loan burden. "In an environment of fast loan growth, we need to remember that we lack the experience of an economic decline. What happens when suddenly a large number of households cannot serve their loans. Is it possible that this would become great social problem in turn endangering our financial stability. As experienced by many countries, it is not just an academic issue but a real-life scenario if we are unable to sustain balanced growth. By comparison, today we are driving on a speedway where error has a very high price," Trink said.
As one of the most important developments in the Estonian economy, Andres Trink noted Hansabank's takeover by Swedbank. "This takeover epitomized the soundness and well-functioning of our financial policies as much as it concerns takeover rules. For a reliable market, it is inevitable and critical that as there are rules for listing a company on the stock exchange and selling stock as there should also be rules for delisting a company. At the same time, small investors have to be protected," said Trink.
"I hope that our securities market will overcome Hansabank leaving and be able to attract new companies to go public. It is extremely vital since the stock exchange is not a club for an enclosed circle of investors but important indicating the dynamics of the Estonian economy as well as the competitiveness of our investment environment," Trink noted.
Andres Trink also discussed in greater detail an event with a major effect on the insurance market the flood in January and resulting storm damages by focusing primarily on how it generally affected customers and insurance services. "The EFSA can report that all our insurance companies played by the rules and reimbursed the losses of households who had insured their property. At the same time, such large-scale loss raised the justified issue of consumer expectations, clarity of policies and performance of mutual obligations," said Trink.
"We are very pleased that insurance companies were able to assess the situation adequately and respond quickly in such a highly unusual situation for Estonia, thus sustaining the reliability of our insurance market," he noted.
"In such circumstances, the government also has to act as a trustworthy partner. For the state, it is vital to ensure public trust of the insurance system and direct as many risks as possible to the private insurance sector to minimize pressure on the state budget. For this purpose, the government has to foster an insurance environment on one hand and on the other hand ensure proper market conduct. We have to remember that the insurance system is sustainable and able to reimburse losses only when premiums from policyholders adequately cover insured risks. Government cannot enforce insurance companies to pay losses not incurred due to insured events. A similar situation would be where the number of borrowers cannot or do not wish to pay back their bank loans. Should the government refrain banks from seizing loan collaterals. Or when the value of securities or pension funds drops, should the government make management companies pay for the market collapse.
"Obviously it doesn't come as a surprise that we are experiencing good times in our financial sector. But we should not forget that these times won't last forever. During good times we should strengthen our preparedness to cope with bad times," summarized Andres Trink on the EFSA position.