(A side remark: output growth in the Nordic countries has also been robust in the past 10 to 15 years. Swedish GDP, for example, has doubled. Such pace of development is likely to have contributed to the growth in the Baltic countries.) Coming back to the Baltics, 1997 and 1998 were the years of the Asian and Russian crises. In the Baltic states, these crises led to the collapse of the stock markets, bankruptcies of many companies, including banks, and a surge in interest rates and unemployment. Thus it was a good time to make cheap acquisitions in many industries, including Baltic banks. That said, strategic entry of Nordic banks was at the time of critical importance to restore market confidence. SEB and Swedbank acquired minority shares in two largest Estonian banks, and started to increase their control. In the year 2000, Sampo Bank followed. BIS Review 81/2006  1  Indeed, the presence of foreign banks in emerging markets has generally been found to increase stability, efficiency, and governance. Combined with improved regulation, strong Nordic banks have brought a qualitative change in the Baltic financial sector. As a result, we can proudly say that the Estonian financial system stands out in the EU for integration, e-banking, and credit conditions, to name a few. Nordic investment in Estonian banking sector has proven profitable: ROE has been around 20 percent. Furthermore, local know-how helped the Nordic parent banks to enter the Latvian and Lithuanian as well as the Russian markets.
It is absolutely true that risks inherent in currency mismatch require vigilance from banks as well as from supervisors. But it becomes alarming when currency mismatch comes from skewed incentive structure as we have seen, for example, also in some EU member states where loans have been taken in foreign currencies because of lower nominal interest rates of foreign currency loans (e.g. Swiss francs). At the same time, most of the borrowing in the Baltic States is denominated in the anchor currency, the euro. It is quite natural in the context of the EU integration that new long-term contracts take into account the forthcoming euro adoption. Therefore, the issue at hand is not to "fight the liability dollarization". Such a fight would not only be a waste of scarce resources, but also completely futile in small open EU countries. Implications for risk management and supervision That brings me to the third topic I wanted to touch upon today, of risk management and financial supervision. I believe that the concerns I just mentioned should neither be overstated nor played down. These risks are a natural part of the immensely positive impact that financial integration has had on the development of the Baltic economies. In a rapid catch-up process, it is difficult to assess the level of optimal credit growth.