Banks earned 79 million euros in net profit in Q1

In the first quarter, 35% more was taken out in housing loans than a year earlier. However, the number of new loan contracts rose by 14% over the same period, meaning the increase in the lending volume was partly due to the strong growth in real estate prices. Although borrowing for housing has grown as the market has recovered, the growth in loan portfolio has remained relatively low due to repayments of earlier loans. At the end of March the housing loan portfolio was 1.5% larger than a year earlier at 5.9 billion euros.

In the first quarter, companies took out 1% more loans than a year earlier. Companies in manufacturing and agriculture took around one fifth more loans in the first quarter than a year before and in recent months there has been somewhat faster growth in loans to the real estate sector. Companies in transport and trade borrowed less in the first quarter than a year earlier. Although the loan and lease portfolio has grown in volume in some sectors through long-term investment loans, the total stock of loans and leases has not changed in the past six months and has remained at 7.6 billion euros.

Annual growth in the portfolio of Estonian household and corporate loans and leases slowed to 0.6% as the volume of corporate loans grew only a little. The total stock of loans and leases increased in March by 26 million euros to 14.9 billion euros.

Interest rates on loans remained the same in March as in the previous month. The average interest rate for housing loans granted in March was 2.6%, and that for long-term corporate loans was 3.2%. The stability of margins and EURIBOR has meant that interest rates have stayed at around the same level for more than a year.

The share of loans overdue by more than 60 days in the loan portfolio remained at 1.9% in March. The slowdown in economic growth in Estonia in 2013 has not resulted in an increase in problem loans. The fall in overdue loans has slowed however, as the total value of such loans has remained unchanged at 250 million euros since November 2013.

Growth in household deposits has remained rapid thanks to rising incomes. Annual growth in household deposits picked up to 8% but deposits by companies declined in March, meaning that total deposits shrank during the month by 112 million euros to 9.2 billion euros.

Banks earned 79 million euros in net profit in the first quarter. Net profit was 2% smaller than a year ago and return on assets was down from 1.7% to 1.6%. Profitability mainly fell because income from the trading portfolio was smaller and changes in the market value of financial assets created losses. Net interest income, which is the main component of bank profits, increased by around 8% during the year, principally because funding costs were low. Profitability was further boosted as some earlier write-downs were recorded as profit, supplying 7% of the net profit for the quarter.

Source: Bank of Estonia

Author:  Jana Kask, Deputy Head of the Financial Stability Department of Eesti Pank

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