The share of overdue loans below 6 pct

In September, new lending to companies was among the highest of the past three years. Compared to previous months, corporate long-term loans and leases prevailed, with their volume making up 226 million euros. The notable growth in new lending was mostly due to a couple of large real estate related projects. Manufacturing companies also took more investment loans. New lending to companies has been picking up since the spring of 2011, accounting for some 30%, annually, in the third quarter.

Compared to a year ago, 27% more housing loans were taken in the third quarter. SHousing loans issued in September made up 54 million euros, which is the highest loan volume since the start of 2009. The issue of study loans was also more active at the start of the school year, but 32% smaller than a year ago.

Although the volume of loans issued within the month increased, the household and corporate loan stock decreased by 10 million euros due to repayments. The total loan and leasing stock was 14.6 billion euros at the end of the month, which is 5.3% smaller than a year ago.

Further lending activity is curbed by intensified risks in the external environment. Export-driven economic growth and favourable interest rates have supported borrowing in 2011. However, possible deterioration in the external environment may weaken the confidence of borrowers and tighten credit conditions.

Loan interest rates were similar to those of August, since both Euribor and the average loan interest margin changed very little. In September, the average interest rates on housing loans and long-term corporate loans were 3.4% and 4.0%, respectively.

The share of loans overdue by more than 60 days shrank to 5.9% of the loan portfolio, while the volume of such loans decreased by more than 50 million euros within the month. Overdue loans declined across all segments, but the most in the real estate sector. Overdue loans and loan provisions also decreased owing to write-offs. In addition, banks have reduced earlier write-downs, as assessments of some loan projects have improved.

The decrease in write-downs increased banks’ quarterly net profit by 7.8 million euros. In the third quarter, banks operating in Estonia earned a total net profit of 424 million euros. 80% thereof was extraordinary financial income from the sale of subsidiaries. Another factor contributing to operating earnings was an increase in the net interest income, since both Euribor and lending activity grew somewhat compared to the previous quarter.

Growth in household deposits accelerated to 13%. Corporate and household deposits increased by 54 million euros in September, to 7.7 billion euros. In addition to demand deposits, the volume of time deposits has also been on the increase, which is partly related to uncertainty in financial markets.

Author: Jana Kask, Head of the Financial Sector Policy Division of Eesti Pank

Read more from Bank of Estonia website

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