Loan market in line with the soft landing of the economy

In December 2007, the total volume of loans and leasing issued to Estonia’s private persons and companies grew by 1.4% and the annual growth rate declined from 51.5% in 2006 to 30.2%. The cooling of loan market reflects the soft landing of the economy to a more balanced growth path where changes take place primarily due to slower domestic demand growth. In December 2007, the number of issued housing loans decreased approximately 60% compared to the same period a year ago. The uncertainty in global financial markets has not had a substantial impact on the Estonian banking sector.

The high level of competitiveness of and positive outlooks for exporting companies are supported by the fact that the growth rate of loans issued to them increased to 25% by December 2007.

The quality of loan portfolios of Estonian banks is good and banks’ loan losses are small in international comparison, although a certain increase in the share of loans overdue is inevitable in the context of economic slowdown. At the end of December 2007, the volume of loans overdue more than 60 days was 1.6 billion kroons, i.e. 0.7% of the loan portfolio. The quality of housing loans which account for the largest share in the portfolio is better than average.

In 2007, the net profit of the banking sector was 7.4 billion kroons which is more than half as much as in the same period a year ago. The growth was largely driven by the increasing profits earned by subsidiaries on other markets. The return on equity of banks rose almost to 30% and their efficiency improved as well, as evidenced by the 35.3% decline of the cost-income ratio.

In December, the average interest rates on long-term corporate loans and housing loans were 6.2% and 5.8% respectively. In recent months, the interest rates on new loans have continued to reflect the changes in the Euribor and the average margins have not changed considerably against the Euribor.

Since January 2008 Eesti Pank publishes once a month a comment on the key indicators of the financial sector. The relevant statistics and its publication schedule is available on the web site of Eesti Pank at

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