Instead, it is important to analyze the loan growth in broader economic policy context where due consideration should be paid to the credibility of macroeconomic policies and the impact other policies may have on the incentive structure in the financial markets. As I stated earlier, the presence of Nordic banks in the Baltic market is, of course, a hugely important positive factor. Parent banks are sometimes considered to have an implicit responsibility for the stability of the banking systems in the Baltic countries. It is said that the Baltic banks are too small to fail. International experience lends support to this view, although the evidence is not always in one way. Hence, there are also potential risks. If parent banks are active in many countries of the region, a shock affecting exposure in one country may lead to a reduction in their exposure across the region. Build-up of exposures to common risk factors in a region may also increase the potential for contagion - a reduction in lending to countries not affected by a crisis. The potential for contagion is naturally higher in highly integrated economies. Another potential risk factor is the smallness of the banks in the Baltics combined with their high profitability. While the Nordic banks have high profitability in all of their markets, profitability in the Baltic market is especially high. As a result, the share of banking groups' assets in the Baltics is significantly lower than the share of profits banks make in this region.
The employment level and wage growth are generally good; economic expectations are high. A notable feature of the Nordic-Baltic markets is their high level of integration. Let's take the example of Estonia. Last year, Finland and Sweden accounted for about 40 percent of Estonian exports and 30 percent of imports. In the stock of FDI, the share of Sweden and Finland is about 75 percent. Cross-border financial integration is all but complete, with the market share of Nordic financial institutions accounting for 99 percent of bank loans and leasing. A long list of Nordic companies regards Estonia and the other Baltic countries as their home market. Therefore, many important business functions, for example liquidity and risk management, are increasingly run on a group-wide basis. Viewing the Baltic countries as a part of the home market, Nordic companies take a long-term business view. This lowers the risk of sudden slowdown or reversal of capital flows, often named as the main risk in the Baltic environment of strong credit growth and high current account deficits. A bit of history: entry of Nordic banks Of course this high degree of integration has been achieved over time. In the Baltic countries, today's level of economic and financial development was a distant dream as recently as 10 years ago. The fall in GDP bottomed out in mid-1990s. The following years have brought rapid output growth. In Estonia, for example, the level of real GDP has more than doubled.