Banks earned 9 pct more profit in 3Q

High levels of activity in the real estate market were reflected in the housing loan market figures for September. Households took out 65 million euros in new housing loans in September, which is 14% more than a year before and the largest amount given out during a single month since the end of 2008. The outstanding loan stock increased by around 10 million euros over the month. As the academic year started, more student loans were taken but still around 22% less than in September 2012.

Although corporate loan turnover in September was lower than in August, the volume of loans issued to companies was relatively high in monthly terms. New long and short term loans worth 796 million euros were issued, which was 15% more than in the same month of the previous year. There was stronger growth in long-term loans, which made up one third of the total value of loans. Loan turnover continued to grow fastest in the real estate, infrastructure and trade sectors due to some large individual transactions.

Somewhat greater lending activity in the non-financial sector in September supported the quite significant growth of 111 million euros to 14.9 billion euros in the volumes of loans and leases to companies and households in Estonia. The annual growth in portfolio volumes remained modest at 1.3%.

The average interest rates on long-term corporate loans remained unchanged at 3% as did those on housing loans to households at 2.5%. The 6 month Euribor, which serves as the base rate for the majority of loan contracts, was also unchanged at 0.34%.

Loan quality continued to improve in both the corporate and household loan portfolios. The percentage of loans overdue by more than 60 days in the loan portfolio fell in September to 2.4%. Long-term overdue loans declined in September by around 34 million euros.

The annual growth in the deposits of the Estonian non-financial sector accelerated during the month from 3% to 5%. The volume of deposits increased during the month by 75 million euros to 8.8 billion. The main contribution to the growth in deposits came from the 53 million euros deposited by companies, though the annual growth rate was faster for households at 7%.

Banks operating in Estonia earned 85.6 million euros in profit in the third quarter of 2013. This was 9% more than in the same quarter of the previous year. Profits were driven by the growth in income from service fees resulting from the increased number of transactions, while net interest income in total remained at almost the same level as in the third quarter of last year. Profitability has also been supported for the past three years by the recognition of earlier write-downs as profit

Source: Bank of Estonia

Author: Kadri Salumaa, Financial Stability Department of Eesti Pank

Tallinn extends free public transport to commuter trains

Tallinn’s free public transport law has been extended to commuter trains from this week.

The City of Tallinn and Elron, the nationally owned train company, have signed an agreement waiving train tickets for trips within Tallinn for passengers who are residents of the city.

Read more from BBN

Planned data centre in Tallinn would transform Estonian power market

The 600-million-euro data centre that Data Valley Enterprises, a company managed by Jussi Vartiainen, plans to build in Tallinn would need much energy for cooling and includes construction of three power stations with a total capacity of 750 MW, writes Ärileht.

This is about half of Estonia’s current winter peak consumption and would turn the Estonian energy sector to its head.

Read more from BBN

The government approved the state budget for 2014

The government approved the state budget draft for 2014. Next year’s budget expenditure will be 8.06 billion euros and the expected revenue will be 8 billion euros. The structurally adjusted budget position will increase to 0.7 per cent of GDP by 2014.

State budget draft for 2014:
Guarantees a stable economic environment
– The current budgetary policy will continue.
– The principles of taxation policy will remain the same – the tax system will remain stable, simple and transparent with as few exceptions as possible.
The aim is to reduce the tax revenue that remains uncollected and thereby improve the competitive environment.
– The state will continue investing in large amounts. Total investments in the next year will amount ca. 18 per cent of all investments in Estonia.
– Focussed choices will be made on the distribution of enterprise support: it will be granted to companies with good potential for growth.
Improves people’s welfare and standard of living
– The payroll in the areas of government will increase by 5.1 per cent, which will ensure that wages in the public sector remain competitive.
– The average pension will increase by 5.8 per cent and remain tax-exempt.
Estonia is one of the few EU Member States where pensions are growing fast. This is possible because the increases in wages have been faster than expected and unemployment has decreased.
Guarantees the sustainability of public finance
– Pursuant to the objective established in the state budget strategy, the structurally adjusted budget of the government sector will remain in surplus in the next year (0.7 per cent of projected GDP).
Nominally, the budget of the government sector is in deficit by 0.4 per cent of GDP.
Structural surplus indicates that there are no sustainability problems in the budget and the nominal deficit in the coming years is a result of temporary factors.
Source: Estonian Ministry of Finance

August was successful for hotel business

According to Statistics Estonia, in August 2013, 385,600 foreign and domestic tourists stayed in accommodation establishments, which was 12% more than in the same month of the previous year. The number of domestic tourists as well as foreign tourists increased.

In August, 249,100 foreign tourists used the services of accommodation establishments and compared to August 2012 the number of foreign tourists increased by 11%. More tourists arrived from the neighbouring countries Latvia, Finland and Russia (32%, 19% and 12%, respectively). More tourists than in August last year also arrived from Lithuania, Poland, Sweden, United Kingdom and Ukraine. Fewer tourists from Germany and from several other European countries stayed in the accommodation establishments of Estonia than in August a year ago.  However, Asian tourists’ interest in Estonia has increased in recent years. 44% more tourists from Asian countries stayed in accommodation establishments than in August 2012. 66% of accommodated foreign tourists stayed in the accommodation establishments of Tallinn, 17% in Western Estonia, 9% in Southern Estonia and 8% in Central Estonia, North-Eastern Estonia and Harju county. Most of the foreign tourists came to Estonia for a holiday trip, one fifth had another reason for visiting Estonia.

In August, 136,400 domestic tourists stayed in accommodation establishments, which is 15% more than in the same month of the previous year. About two thirds of the accommodated domestic tourists were on a holiday trip and 23% on a business trip. Compared to July, the share of business trips increased and the share of holiday trips decreased. 60% of the domestic tourists stayed in the accommodation establishments of Western and Southern Estonia and one fifth stayed in Northern Estonia. The accommodation establishments located in North-Eastern and Central Estonia were used less.

In August, 1,182 accommodation establishments offered services for tourists. 21,400 rooms and 50,300 beds were available for tourists. The room occupancy rate was 56% and the bed occupancy rate was 47%. In Tallinn, the room occupancy rate and the bed occupancy rate were higher than Estonia’s average.

The average cost of a guest night was 32 euros, which is two euros more than in August of the previous year. The average cost of a guest night was 39 euros in Tallinn.

Accommodation by region, August 2013
Accommodation Total Northern Estonia North-Eastern Estonia Central Estonia Western Estonia Southern Estonia
Accommodation establishments 1 182 198 64 113 443 364
Rooms 21 355 8 364 1 315 1 490 6 042 4 144
Beds 50 296 17 910 2 840 3 777 14 972 10 797
Room occupancy rate, % 56 73 52 36 47 42
Bed occupancy rate, % 47 64 48 34 39 34
Tourists accommodated 385 579 198 910 20 508 20 343 83 032 62 786
Nights spent 731 844 354 169 42 053 39 888 181 727 114 007
residents of Estonia 239 023 47 368 20 749 26 997 70 914 72 995
foreign visitors 492 821 306 801 21 304 12 891 110 813 41 012
Average cost of a guest night, euros 32 38 24 23 29 22


Developments in the labour market favour workers

Employment grew at a steady rate in the first half of 2013 despite the slow rate of economic growth. This is still evident even after correction is made for the natural shrinkage of the working age population and emigration, which are not taken into account in the labour market statistics for this year. The slowdown in growth in the first half of the year did not affect the labour market significantly as it was not broad-based and economic growth affects labour market indicators with a lag.

Detailed data by county from the population statistics show relatively high domestic internal migration. Labour markets in several counties, such as Ida-Virumaa, Valgamaa and Jõgevamaa are affected more by the large movement of population to other counties than by emigration. As a result, manufacturing companies face shortages of skilled labour, and their relocation has an impact on other businesses.

The employment rate, or the share of the working age population that is in employment, is currently almost as large as it was before the crisis, while unemployment has fallen. The number of people who don’t meet the criteria to be classed as unemployed but who would like to work or to work more hours also fell. The share of employees whose wages increased was notably larger in the first half of 2013 than it was last year. This shows that the recovery in the labour market has improved the lives of many people who suffered during the crisis.

Companies had to raise wages by more than last year in order to recruit new employees and to hold onto their existing staff. The shortage of qualified workers and the option of going abroad to work have strengthened the position of employees in the market. The unemployment rate has fallen to a level where wage pressure is increasing and the number of job-changers among new employees has increased. Although profits grew together with wages in the first half of the year, any continuation of wage growth over a longer term will lessen the ability of companies to maintain jobs if there is a temporary setback.

In the last three years unit labour costs have risen by more than 9% in total. The main risk linked to the rapid rise in unit labour costs is of wage pressure, which has already evident in the faster rises in service prices and a weakening in the price competitiveness of the exporting sector. This in turn could have a braking effect on economic growth.

Source: Bank of Estonia

Author: Orsolya Soosaar and Natalja Viilmann, Eesti Pank Economists

European recovery in longer-term perspective

Governor Ardo Hansson participated in a panel discussion at the seminar organised by the Peterson Institute for International Economics in Washington. 09.10.2013

See the speach on the Bank of Estonia website here

Corporate borrowing from abroad continues to grow

Corporate debt was 7% larger at the end of the second quarter than it was a year earlier. The total volume of loans taken domestically and abroad by companies and of bonds issued rose in the second quarter by around 200 million euros to a total of 16.9 billion euros. The majority of the growth came from an increase in borrowing from abroad. Corporate borrowing from abroad has increased steadily since 2008 and by the end of the second quarter of this year external debts made up more than 35% of total debt.

Corporate equity and liquid assets grew at the same rate as debt. This meant that corporate leverage and debt coverage with liquid assets remained about the same as in the previous quarter.

As developments in the labour market were favourable for households, the improvement in the financial position of households and the increase in financial buffers continued in the second quarter. Household debts were slightly lower than a year earlier, but increased by 22 million euros from the previous quarter. The financial savings of households, which are their deposits and cash held in hand, grew at an annual rate that reached 7% by the end of the quarter.

The Estonian economy as a whole was a net lender in the second quarter. This means that fewer funds were taken from abroad than were invested or repaid there.

Source: Bank of Estonia

Author: Taavi Raudsaar; Financial Sector Policy Division of Eesti Pank

Businessman to buy holding in tabloid

Janek Veeber, son of late father Tiit Veeber who had extensive business holdings in the district heating system of Tartu, plans to acquire a holding in Estonia’s largest daily Õhtuleht, magazine publisher Ajakirjade Kirjastus and newspaper delivery service Express Post.

Read more from BBN

Tallinn, Helsinki to develop a twin-port project

In the framework of the TEN-T conference to be held in Tallinn this week, Tallinn and Helsinki will sign a project for the so-called twin port development.

The project focuses on the development of Länsisatama in Helsinki and Old Harbour in Tallinn.

Under the project, Port of Helsinki will develop a new new passenger terminal, traffic and parking areas and quays in Länsisatama while Port of Tallinn will focus in improving the traffic system in Tallinn Old Harbour.

Read more from BBN