Estonia's central bank said on Tuesday it would raise the minimum capital requirement for the eurozone country's banks to 12.5 percent on August 1 to cover systemic risks in the small open economy.
The central bank said in October last year it would add 2 percentage points to the European Central Bank's (ECB) minimum capital requirement of 8 percent, and an additional 2.5 percentage points in line with ECB rules for capital conservation buffers.
"Estonia's small, open economy poses a systemic risk for banks due to external factors such as a sudden worsening of the economic situation, which could quickly lead to loan servicing problems in the private sector and a worsening of bank finances," Ardo Hansson, Estonia's central bank governor said in a statement.
Estonia's banking sector is 95 percent controlled by large Nordic banking groups, such Swedbank, SEB, Danske and Nordea.
Reporting by David Mardiste, editing by Louise Heavens