Borrowing by households increased in August

  • The growth in corporate borrowing has slowed a little in recent months
  • The number of new borrowers with housing loans has grown faster this year than previously
  • The deposits of companies and households were up 12% over the year

The loan and lease portfolio of Estonian companies and households again grew fast in August, though a little more slowly than before. The stock of loans and leases taken by companies and households from banks operating in Estonia stood at 17.7 billion euros at the end of August, which was 5.6% more than a year earlier. The growth in the loan portfolio has been smaller than before because of slower growth in corporate loans and leases, while the growth in loans to households has accelerated.

Growth in the corporate loan and lease portfolio slowed for the fourth consecutive month to 4.3% over the year in August. Corporate borrowing from abroad is also estimated to have grown relatively slowly in the first half of 2016, like it did last year. Corporate investment in real estate increased in the first half of 2017. In addition to using external funds, companies can also fund their investment from the significant financial buffers they built up earlier.

Borrowing by households increased again in August. Demand for loans from households has been supported by the continuing rapid growth in the average income of wage earners and by low interest rates. Activity increased in the real estate market and prices rose further. New housing loans worth 107 million euros were taken in August, which is one tenth more by value than a year earlier, and the housing loan portfolio increased by 6.4% over the year. The volume of new housing loans has increased this year primarily because the number of new borrowers has grown at a faster rate than before, rather than because the size of the average loan has increased. The portfolio of other loans and leases to households was increased by 29 million euros by the addition of the branch of TF Bank AB to the list of credit institutions. Without this, other household loans and leases would have increased by 8.2% in August rather than 10.7%. Demand for car leases remains strong, and in August the portfolio was some 15% larger than a year earlier. The stock of overdrafts and credit card loans was up in July and August by 4% over the year.

The average interest rate on new housing loans has risen this year. Demand for housing loans remains strong, allowing banks to raise their interest margins. The rise in interest rates may equally be due to higher credit risk for the new housing loan clients. Competition is tighter in the corporate loan market and demand weaker, and the average interest rate on new long-term corporate loans was similar in August to the average of the previous year. The average interest rate for new housing loans granted in August was 2.4%, and the average rate for long-term corporate loans was 2.3%.

As loan growth has been faster, so the deposits of companies and households have grown more and more. The deposits of companies and households were almost 12% larger in August than a year earlier at a total of 21.4 billion euros. The sales revenues of companies have risen this year, and this can be seen in the growth of deposits. Corporate deposits were up 15% on a year earlier, and those of households were up around 9%, which was due to the rapid rise in incomes.

Source: Bank of Estonia

Author: Mari Tamm, Economist at Eesti Pank

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Household loans are growing at an ever faster rate

  • The growth in the stock of household loans has caught up with growth in incomes
  • Interest rates on housing loans have increased slightly in 2017, but they remain low
  • The volume of deposits is growing faster than the portfolio of bank loans and leases

The stock of loans and leases issued to companies and households by banks operating in Estonia stood at 17.6 billion euros in July, which is 5.9% more than a year earlier. Growth was slightly slower than in previous months because companies were borrowing a little less. In contrast, loans to households are increasing at an ever faster rate.

The annual growth in the stock of loans and leases to companies slowed to 5.2% at the end of July. The slower growth does not necessarily mean that the growth in the total debt of companies has slowed, as there has been some slight growth in 2017 in borrowing from abroad and from parent companies, which had slowed in the past couple of years. The growth in credit has been faster than the average in agriculture and forestry and in the transport sector.

The annual growth in the stock of loans and leases to households picked up to 6.6% by the end of July. The rise in the average income has been about the same in recent quarters. Faster growth in loan liabilities would increase the risk of households being unable to repay their loans. Demand for housing loans is high, and the volume of new housing loans issued in the past three months is 16% higher than during the same months of last year. Some two thirds of this comes from increased activity in the credit market as the number of loan agreements has risen. The average amount borrowed has also increased. Rising incomes and increases in confidence have also seen the take-up of car leases and consumption loans increase.

Interest rates on housing loans have risen a little in 2017, but they remain low. Increased demand for credit has allowed banks to increase their loan margins slightly. This means that the average interest rates on loans granted is 0.3 percentage point higher than at the start of the year and is now 2.4%. The average interest rate on long-term loans granted to companies was also 2.4% in July.

The total deposits of companies and households again increased faster than the portfolio of loans and leases. The rapid growth in deposits has accompanied the continuing rapid growth in the economy and in incomes. The total volume of deposits was 11% higher in July than a year ago at 12.3 billion euros. Household deposits were 8% higher in July than a year ago but corporate deposits were up by some 15%.

Source: Bank of Estonia

Author: Taavi Raudsaar, Economist at Eesti Pank

Banks earned more than 85 mEUR net profit in 2Q

  • Households continued to borrow at a fast pace in June
    The deposits of companies and households were up 11% over the year
    The ability of companies and households to service their loans is good, which keeps bank loan losses low

The stock of loans and leases from banks to companies and households was 6% larger in June than a year earlier at 17.5 billion euros. Loans to households grew faster, but the increase in corporate lending decelerated slightly compared to its previously strong growth.

Compared to last year, companies took out 5% more loans and leases from banks in the second quarter of 2017. The growth of short-term financing became more rapid as economic activity increased. Long-term loans and leases for companies as a whole grew rather modestly at 3%, but the situation varied across sectors. The volume of new loans increased substantially in the industrial, transport and real estate sector, while retail companies took out significantly less in loans than a year ago. The yearly growth in the stock of the corporate loan and lease portfolio slowed down somewhat, to 5.7% at the end of June.

Household borrowing activity has remained strong on the back of improved confidence and increased income. Around 15% more was taken in new housing loans in the last three months than at the same time last year, and 17% more in car leases. The yearly growth in the housing loan portfolio accelerated to 6.2% in June and the growth in the volume of car leases remained high at 14%.

Loan interest rates have not changed much over the past months. The average interest rate on new housing loans increased slightly due to a rise in the interest margin, from 2.3% to 2.4%, but remained low. The average interest rate for long-term loans taken by companies in June was 2.3%.

The share of loans overdue by more than 60 days in the loan portfolio fell to 0.9%. The reduction in overdue loans shows the borrowers’ good ability to service their loans thanks to faster economic growth and still very low base interest rates. The volume of long-term overdue loans fell by around 25% in a year.

Deposits continue to grow rapidly. Estonian companies and households held 12.3 billion euros in deposits at banks at the end of June, which was 11% more than a year before.

Banks earned more than 85 million euros in net profit in the second quarter. The net profit made up 1.4% of assets, which is a bit higher than the level of the past two years. Profitability was mainly supported by net interest income, which grew 6.5% year-on-year. The fact that loan losses continued to be small and administration costs were lower also had a positive impact.

Source: Bank of Estonia (see graphs here)

Author: Jana Kask, Economist at Eesti Pank

Corporate and household debt has started to increase

  • Companies are still borrowing mainly from banks operating in Estonia
  • Household savings continued to increase faster than their debt liabilities in the first quarter
  • Growth in incomes and savings helps to reduce risks arising from credit growth

Corporate debt liabilities were 2.5% larger at the end of the first quarter of 2017 than a year earlier. Investment, which grew rapidly in the first quarter, was mainly financed from companies’ own funds and loans taken from banks operating in Estonia. The amount of foreign money brought in the country in the form of equity and debt capital increased modestly. Faster economic growth caused a slight decrease in the corporate debt burden, or the ratio of debt liabilities to GDP.

The loan liabilities of households increased almost at the same rate as their incomes. Rising wages, low unemployment and low interest rates on loans all encouraged increased demand for loans from households, and their loan liabilities increased by 6%. Both housing and consumption loans from banks and loans from other lenders have increased in volume.

Household savings have also grown quickly thanks to increased incomes and a high propensity to save. The volume of household deposits and cash was 9% larger than a year earlier. There was also growth of more than a quarter over the year in the value of tradeable securities held by households – which was supported by an increase in the price of securities in particular. Despite the rapid growth, the financial savings of Estonian households in relation to incomes are still below the European Union average.

The Estonian economy was still a net lender to the rest of the world in the first quarter: Estonian residents put more funds abroad than they took in from abroad. This means that in line with the trend of the past few years, Estonian residents save a lot and the level of investment in fixed assets is low in spite of the growth in the first quarter.

Source: Bank of Estonia

Author: Taavi Raudsaar, Economist at Eesti Pank

Household borrowing grows strongly

  • Corporate loan and leasing portfolio grew 6.3% year on year, comparable to the previous months
  • The number of new housing loan agreements signed in May was 12% up from last year
  • Both corporate and household deposits continued to show a strong growth

Corporate and household borrowing from the banks and leasing companies operating in Estonia increased in May 6.3% year on year, in line with the previous months. While y-o-y growth in the corporate loan and lease portfolio slowed slightly relative to the previous months, housing loans were gathering pace. The total loan and leasing portfolio increased in the month by EUR 90 million to EUR 17.5 bn.

The corporate loan and leasing portfolio increased in May by 6.3% year on year. The fastest rise was recorded for companies in the trade, agriculture and transport and warehousing sectors. New long-term loans were issued to companies in the value of EUR 237 million, 7% up from last year’s figure. Manufacturing companies have taken more long-term loans in the recent months than a year ago.

The y-o-y growth in the housing loan portfolio increased to 6.1% in May. The number of housing loan agreements signed was 12% up from last year’s figure, while the average loan amount grew by 4%. Similarly to previous months, household car leasing went up in May, gaining 14% on a year earlier. The demand for loans and leases is backed by a relatively rapid growth in household income and low interest rates.

The average interest rate on housing loans has not changed in the past months. Since February, the average interest rate for new housing loans has stood steady at 2.3%. The average interest rate for corporate loans was 2.4% in May, also in line with the average figure for recent months.

Deposit growth was picking up and continues to outpace the growth of the loan and lease portfolio. Corporate deposits grew in May by 15% compared to a year earlier. Household deposits have similarly shown a strong growth, increasing in May by nearly 9% year on year. By contrast, non-resident deposits have shrunk significantly in recent months and stood at EUR 1.5 bn as of the end of May, representing 11% of the total deposit stock.

Author:, Mari Tamm, Economist at Eesti Pank
Source: Bank of Estonia

Code card identification still popular in Estonia

A recently conducted survey shows that though Estonian residents’ awareness of the need for cyber security is high, up to 40 percent still prefer code cards to other means of identification when logging in to their Internet bank.

The Nutikaitse 2017 project looked into residents’ skills and knowledge of cyber security procedures, and how aware they are of potential threats. One of the project’s advisors, Erki Peegel, told ERR’s radio news that a majority of respondents also applies this knowledge.

More than 90 percent of residents use passwords for their smart devices and don’t share them with others. At the same time, the fact that some 40 percent of respondents still prefer outdated code cards to more up-to-date means of identification when dealing with their bank online is a cause for worry, Peegel said.

Read more from ERR News

Housing loan portfolio up 6 pct year-on-year in April

  • Corporate and household loan and lease portfolio grew strongly in April, up almost 7% year-on-year
  • Issuance of new long-term loans to companies remained unchanged from April 2016
  • New housing loans have seen an increase relative to a year ago
  • Deposits with banks continued to grow faster than the loan and lease portfolio

Corporate and household loan and lease portfolio continued to grow solidly in April, increasing 6.6% year-on-year. The loan and lease stock grew by approximately 73 million euros, amounting to around 17.4 bn euros as of the end of the month.

The corporate loan and lease stock grew 7% year-on-year. Growth has been stable this year at a level close to last year’s average. Short-term loans have picked up over the past few months. Growth has been fastest for loans to the primary sector and trade companies. New long-term loans were issued to companies in the value of 228 million euros, a level more or less unchanged from April 2016.

Housing loan portfolio was up 6% year-on-year in April. Housing loans have been gathering pace since the second half of 2016. The housing and loan market activity has been intensified by an increase in transactions with new apartments. The volume of housing loans issued in the year to April has grown, relative to last year’s figure. There has been an increase in the number of contracts as well as the average amount of a loan.

Household car leasing continued to grow at a fast pace, up 14% year-on-year. The stock of overdraft and credit card loans started to increase in the second half of 2016 and gained slightly over 3% in March and April compared to a year earlier.

The average interest rate for new housing loans has risen slightly, resuming the mid-2016 level. The average interest rate of housing loans issued in April was 2.3%. The interest rate of corporate long-term loans was, on average, considerably high in April relative to the past months, affected by the refinancing of loans restructured to avoid default.

The volume of loans overdue over 60 days remained low in April. The volume of loans overdue over 60 days was 163 million euros, accounting for 1.1% of the loan portfolio. 97% of such loans are covered by loan-loss provisions.

Corporate and household deposits continue to outpace the loan and lease portfolio. Corporate and household deposits were up 11% year-on-year in April, amounting to almost 12 bn euros as of the end of the month. Annual growth in corporate deposits accelerated to 15%. Similar to previous months, household deposits gained approximately 8% on a year earlier.

Source: Bank of Estonia

Author: Mari Tamm, Economist at Eesti Pank