As if the Nordic winter weren't enough, the Central Bank of Estonia brought a breath of fresh air to the country's tiny economy in late 2003, in response to the alarming trade imbalance—a major thorn in the side of the Estonian economy—and the dizzying growth in borrowing levels over the previous three years. This reprimand to commercial banks anticipates stricter lending conditions and more detailed risk analysis, as well as proposals to the government to revoke the income tax refund on interest paid on housing loans.
According to Vahur Kraft, president of the Central Bank, the objective was to send a message to both banks and citizens to correct an "overly optimistic" view of the future. This stance has been supported by many politicians, who endorse a conservative fiscal policy and fear jeopardizing the country's economic growth in the event of a rise in bank interest rates. Both Hansapank and Eesti Ühispank, the country's two largest banks, have supported measures that reduce competition in the real estate sector, the main cause of the "war of interests" that has reduced their profits.
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