Estonians have a small loan burden

  • The primary residence in the most valuable asset of Estonian households as its value accounts for roughly half of that of all assets
  • One fifth of the real assets of households are the assets of businesses that they own and that they work for
  • The largest part of the financial assets of Estonian households are bank deposits and financial assets account for a smaller share of assets than they do in other euro area countries
  • The loan burden of Estonian households is smaller than the euro area average and their financial buffers are also smaller

Eesti Pank and Statistics Estonia jointly carried out the Household Finance and Consumption Survey (HFCS) of Estonian households in 2013. A survey of households collected data on their assets, liabilities, income and consumption.

The results of the survey show that Estonian households have less in assets than households in the rest of the euro area do, though the results for Latvia and Lithuania have not yet been published. The median value of net assets in Estonia (the value of a household’s assets minus the total of its liabilities) was the smallest of any country in the euro area, coming in last place behind Germany and Slovakia. The median value is the central figure where half of households are above and half are below. The median value for the net assets of Estonian households was 43,600 euros in 2013.

In Estonia and in other countries, net assets are more unevenly distributed among households than incomes are. The Gini coefficient for the distribution of net assets in Estonia, which is a measure of inequality, is one of the highest in the euro area. The higher the coefficient, the greater the inequality that it expresses1. The coefficient was only higher than it was in Estonia in Germany, Austria and Cyprus. One possible cause of the inequality in assets is the large variation in real estate prices across the different regions of Estonia.

The most valuable asset that Estonian households have is their main residence. The share of home owners is higher in Estonia at 77% than the euro area average of 60%. The value of the primary residence accounts for roughly half of that of all the assets of households, which means that the wealth of households is largely dependent on the value of their homes.

Equally, a relatively large share of the real assets of Estonian households are the assets of businesses that they own and that they work for on a daily basis. These assets account for one fifth of all real assets, which is almost twice the euro area average. Such assets are owned by around 12% of households in Estonia and their median value is 11,700 euros.

The financial assets of Estonian households are mainly in bank deposits and they account for a smaller share of assets than they do in other euro area countries, making up 10% of assets in Estonia and 17% in the euro area. The low share of financial assets is similar to the shares in other euro area countries with relatively lower income levels like Slovakia, Slovenia, Portugal and Greece. Like in Estonia, the financial assets in these countries are not very diversified and mainly consist of bank deposits.

The lion’s share of loans in Estonia are real estate loans, and housing loans make up the largest share of them, accounting for 85% of the total loan burden. The loan burden of Estonian households is smaller than the euro area average as 37% of households in Estonia have a loan, while the euro area average is 44%. In comparing the loan burden, it should be remembered though that its optimal level depends on incomes and the income levels in other countries in the euro area are generally higher than that in Estonia. The loan burden of Estonian households is relatively large compared to those in countries of a similar income level.

It is worth noting for Estonia that the majority of loans are to younger households, for two main reasons. Firstly, there are many people in older households who got their residence through privatisation and did not need a loan to buy it. Secondly, the housing loan market in Estonia only emerged relatively recently, from the start of the 2000s.

Although the loan burden here is smaller than in other euro area countries, Estonian households also have relatively small financial buffers. The median household, which is where half of households have smaller financial buffers and half have larger, has sufficient resources to cope for about a month, while the median household in the euro area has sufficient assets to last for a little over two months.

Overall the structure of the assets and of the net assets of Estonian households is similar to the structures in other Central and Eastern European countries in the euro area. In comparison to the situation in those countries however, the net assets of households in Estonia are more unequally distributed despite the high share of home ownership. From a financial stability standpoint, the loan burden of Estonian households is smaller than in other euro area countries, but Estonian households are vulnerable because of their modest financial buffers.


1 The Gini coefficient is a measure of inequality that ranges from zero to one. The closer it is to one, the more unequal is the distribution of assets. If the Gini coefficient is zero, assets are equally distributed, while a value of one indicates perfect inequality. The Gini coefficient for net assets in Estonia in 2013 was 0.69, and the Gini coefficient for incomes was 0.36.

The Household Finance and Consumption Survey is carried out regularly every three years in the countries of the euro area. It is a comprehensive survey that covers all the countries of the euro area and allows the financial positions of households to be compared across countries. The survey was carried out in Estonia in 2013 and 2220 households were interviewed for it. The next household survey in Estonia will be carried out in 2017.

Source: Bank of Estonia

 

 

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