CORRECTED-UPDATE 1-Estonia to raise bank capital buffers to 10 pct

Wed Oct 23, 2013 11:39am EDT

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TALLINN Oct 23 (Reuters) - Estonia plans to set an additional 2 percent buffer against systemic risk for its banks when the European Central Bank's (ECB) new capital adequacy requirements are implemented.

The country's central bank said on Wednesday that the minimum capital requirement for Estonia's banking sector will total 10 percent from next year, including the 8 percent requirement set by the ECB.

"Estonian experience has shown that an unexpected deterioration in the economic environment for a small and open economy can lead to debt-servicing problems in the non-financial sector and that the financial position of banks can worsen very rapidly," the central bank said in a statement.

Estonia's banking sector is 95 percent controlled by large Nordic banking groups such Swedbank, SEB, Danske and Nordea.

Estonian central bank governor and ECB policy board member Ardo Hansson also saw risks to the Estonian economy from a possible real estate bubble in the Nordics.

The rapid rise of real estate prices in Nordic countries could also bring a quick fall, Hansson told journalists at a news conference.

The bank added that such a fall could make it harder for Nordic banks to access funds from the markets.

"This could also lead to a recession in the Nordic countries, which are important export markets for Estonian companies," it said in a statement. (Reporting by David Mardiste; Editing by Alistair Scrutton and David Goodman)

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