The profitability of the banks similar to last year in 1stQ

  • The portfolio of corporate loans and leases grew by a rapid 7% over the year
  • There was more activity in the housing loan market than a year earlier
  • The average interest rates on new loans rose

In the first quarter of 2017 the portfolio of loans and leases to Estonian companies and households continued to grow rapidly. The total volume of loans and leases was 6.5% larger in March than a year previously. The portfolio increased by 220 million euros during the quarter to 17.3 billion euros.

The total volume of loans and leases increased quickly, though a little more slowly than in the final quarter of 2016. The portfolio of loans and leases to companies was 7% larger in March than a year previously. Companies received 584 million euros in new long-term loans in the quarter, which is about 10% less than in the same quarter of last year.

Growth accelerated in the housing loan portfolio. The total volume of housing loans was 5.9% larger in March than a year earlier and there was more activity in the housing loan market in the first quarter than a year earlier. Both the number of loans and their average value rose. The portfolio of car leases to households was 14% larger over the year in March and the volume of overdrafts and credit card loans was 3% larger.

The average interest rates on new loans rose. The average interest rate on housing loans issued during the month climbed in both February and March, and the average interest rate in March was 2.3%. The average interest rate on loans to companies also rose in March. However, the margins on loans to companies are quite variable depending on the exact timing of the particular project.

The quality of the loan portfolio of the banking sector remained good at the beginning of 2017. The stock of loans overdue for more than 60 days shrank mainly because of a decline in the long-term overdue loans of industrial companies. At the end of March, 1% of the loan portfolio of the banking sector consisted of loans overdue for more than 60 days.

The deposits of companies and households again grew faster than the loan and lease portfolio. Total deposits increased by 11% over the year in March to 12 billion euros. Corporate deposits grew a little faster and were up 14% in March on a year earlier, while those of households were up 8.1%.

The profitability of the banks remained at a similar level to last year in the first quarter. Net profit of 89 million euros was earned in the quarter, which is equivalent to 1.5% as a ratio to total assets on an annualised basis. Increased interest income and a reduction in provisions contributed to profit, with interest income itself driven by growth in the loan portfolio and a rise in the interest margin on it. The fall in net service fee income and income tax expenses had a negative impact on profit.

Source: Bank of Estonia

Author: Mari Tamm, Economist at Eesti Pank

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