Corporate and household deposits up 10 pct year-on-year in February

  • New loans to companies dropped somewhat in early 2017 compared to a year earlier
  • New housing loans grew by 10% in February year-on-year
  • Deposits grew faster than the banks’ loans and lease portfolio

The portfolio of loans and leases to companies and households increased in February by 57 million euros to 17.2 billion euros, gaining 6.3% year-on-year.

The growth in corporate loans and leases taken from banks and leasing companies operating in Estonia slowed somewhat in early 2017 but nevertheless remained solid. Corporate loan and leasing portfolio gained 6.8% in February compared to year ago. As corporate borrowing from abroad and from sources other than banks and leasing companies has decreased, the overall level of corporate debt has remained more or less the same. During the first two months of 2017, the volume of new loans to companies has dropped from a year ago.

The housing loan portfolio grew at a pace similar to January, gaining 5.6% year-on-year as at the end of the month. 76 million euros worth of new housing loans were issued in February, up around 10% year-on-year. Lending increased in terms of the number of contracts as well as the average value of contracts. Albeit slowing down somewhat during the first months of 2017, car leasing continues to grow at a fast pace (up 14% in February year-on-year). Overdraft and credit card loans rose 1.2% in February compared to a year earlier.

The volume of loans overdue over 60 days grew slightly, continuing the trend from January, but remained low. Although the volume of loans overdue over 60 days increased to 188 million euros in February, it accounts for only a small share of the loan portfolio (1.2%).

Corporate and household deposits grew strongly, up to almost 10% from a year earlier, which shows that deposits have grown faster than the banks’ loan portfolio. Household deposits increased by around 116 million euros in February, up 8% year-on-year. Corporate deposits showed a 11% gain on the year earlier.

Connections between housing prices and housing credit in Estonia

This paper of Bank of Estonia investigates the mutual dependence between housing prices and housing credit in Estonia, a country which experienced rapid debt accumulation during the 2000s and big swings in house prices during that period. We use Bayesian econometric methods on data spanning 2000–2015. The estimations show the interdependence between house prices and housing credit. More importantly, housing credit shocks had a stronger effect on house prices in the period of declining credit turnover. The asymmetry in the linkage between housing credit and house prices highlights important policy implications, in that if central banks increase capital buffers during good times, they can release credit conditions during hard times to alleviate the negative spillover into house prices and the real economy.

Read more here (2/2017 Juan Carlos Cuestas, Merike Kukk. Asymmetries in the interaction between housing prices and housing credit in Estonia)

Businesses need to be ready for the new 50-euro banknotes

  • Fifty-euro notes account for 36% of the total number of euro banknotes in circulation
  • The main security features of the new fifty-euro note are the transparent portrait window, the portrait watermark, the emerald green number and the raised lines
  • The new note will enter into circulation in the whole of the euro area on 4 April
  • Businesses will need to update their cash handling systems
  • Seminars will be held across Estonia so businesses can see the new security features

At the start of April, Eesti Pank and the other central banks of the euro area will release a new €50 banknote into circulation with a new design and new security features. So that the new note can enter smoothly into circulation, it is important for companies to update their cash handling equipment in good time, and to know about the new features of the notes.

The most eye-catching change to the fifty-euro notes of the new series is the same as on the new twenty-euro notes, the transparent portrait window on the right of the note on the hologrammic strip. The portrait window is transparent, and looking at the note against the light reveals a portrait of Europa in the window. The other security features – the watermark portrait of Europa and hologrammic strip, the emerald green number, and the short raised lines on the edge of the note – are like those on the five and ten and twenty-euro notes of the new series.

“All traders have to accept currency that is legal tender, and those who haven’t made preparations are nearly at the last moment for doing so”, said Rait Roosve, Head of the Cash and Infrastructure Department at Eesti Pank. “The new notes must be accepted even if the technical upgrades have not been made or there is no cash authenticating equipment. The authenticity of all the banknotes can be checked by hand, and not just by professional cash handlers but by anyone”, he emphasised.

The new fifty-euro note will enter into circulation on 4 April. Paying with the new banknotes will be simple and straightforward as long as merchants update their cash-handling equipment and authentication devices. To do this they will need to contact their equipment suppliers.

To check the security features of notes of both the old and the new series, look at the banknote against the light, tilting it back and forth, and feel its surface. Further details on the security features of the banknotes can be found on the new-euro website.

Further information

  • Eesti Pank is organising thorough training courses for cash handlers in February and March on the new banknote in Tallinn, Tartu, Jõgeva, Võru, Pärnu, Haapsalu, Narva and Rakvere. More information about the training sessions and related publications can be found in Estonian on the Eesti Pank website. Anyone interested in these courses may contact Eesti Pank about them directly.
  • In addition to this, the European Central Bank will send all cash handlers in Estonia a booklet on the new €50 banknote. The booklet is free and can also be ordered from Eesti Pank (info@eestipank.ee, 6680 719).
  • The first series of fifty-euro notes, which are currently in circulation, will continue to be valid. This means they do not need to be exchanged as they can be used in the future for paying in shops and elsewhere. The same was true when the new five, ten and twenty notes were introduced.
  • When the new fifty-euro notes are introduced into circulation from 4 April, it will be done gradually. This means that the earlier banknotes of the first series will be in use at the same time as the new second-series notes. The same happened with the five, ten and twenty-euro notes, which are in use in banks, shops, cash machines and elsewhere with both the new and old designs.
  • All the banknotes of the first series will keep their value indefinitely, though at some point it will no longer be possible to use them for paying in shops. When this point has been decided on, it will be announced and publicised well in advance. After this point, it will only be possible to exchange the old notes for new ones at Eesti Pank and other central banks of the euro area, and there will be no limit on how long this can be done for.
  • Anyone can learn how to identify the new fifty-euro notes using the simple method of feel, look and tilt. It is always best to check multiple security features on a note, not just look at only one.
  • The fifty-euro notes of the second series have new and additional security features that are like those on the five, ten and twenty-euro notes. All of the designs have a series of short raised lines on the edges of the note, a portrait watermark, a portrait hologram, and an emerald green number. The twenty and fifty-euro notes of the second series also have a portrait window. The window is a transparent part of the note, but the front and reverse sides of the window are slightly different. The window in the hologram seen from the front shows a portrait of Europa, and when the note is tilted, the value of the note appears in the window and rainbow-coloured lines appear around it. On the back of the banknote, rainbow-coloured value numerals appear in the window.
  • Pictures and videos of the new €50 note can be found at http://www.new-euro-banknotes.eu/Resources/IMAGES.
  • The European Central Bank has published a list of devices that can authenticate banknotes of the new series on its website and has added a list of those that can authenticate the €50 note (http://www.ecb.europa.eu/euro/cashprof/cashhand/devices/html/results.en.html).

 

Source: Bank of Estonia

New low-value coins enter circulation

In 2017 Eesti Pank is extending its stock of circulating coins and has minted additional 1, 2, 5 and 20-cent coins. The new coins will enter circulation on 7 March.

Eesti Pank has had 9 million one-cent coins minted, 4 million two-cent coins, 4.55 million five-cent coins, and 3.25 million twenty-cent coins. The total value of the new coins is 1,047,500 euros.

The design of the new Estonian euro cent coins is the same as that of other coins in circulation, except for the year marked on the coin as 2017. The coins were minted in the Mint of Finland.

The coins with the current year on them will enter into circulation from 7 March through banks and in response to demand. Uncirculated new coins are also available from the Eesti Pank museum shop and the online store.

Eesti Pank is issuing a new two-euro commemorative coin in the second half of the year, dedicated to the events leading up to Estonia’s independence 100 years ago. It is planned that 1.5 million of the commemorative coins will be issued in Estonia.

On 4 April, Eesti Pank and the other central banks of the euro area will release a new €50 banknote into circulation with a new design and new security features.

Source: Bank of Estonia

Rapid growth in loans and leases to companies continued in October

  • The portfolio of loans and leases to companies was up by 8.4% over the year in October with support from long-term loans
  • Growth in housing loans has picked up since the second quarter of this year, and was 4.9% in October
  • The volume of new housing loans was one tenth larger in October than a year earlier

The loan and lease portfolio of Estonian companies and households grew in October at a similarly fast rate to that of the preceding months. The stock of loans and leases was 6.9% bigger last month than a year before and at the end of the month it totalled 17 billion euros.

There was an increase of 8.4% over the year in the portfolio of loans and leases taken by companies from banks operating in Estonia. Growth in the domestic bank loans and leases of companies has been faster this year than last, mainly because of growth in long-term loans. There was a reduction in borrowing from abroad by companies in the first half of the year though, and so the total corporate debt has not changed in size substantially. The volume of domestic bank loans and leases to companies was affected significantly in October by individual large transactions.

Growth in housing loans has picked up since the second quarter of this year. The housing loan portfolio was 4.9% larger in October than a year earlier. The 95 million euros of new housing loans issued during the month was one tenth more than was issued a year previously. However, the number of new loan contracts signed in recent months is not notably more than a year ago, and the amount issued in new loans has mainly increased because the average value of transactions has risen. This indicates that the share of transactions with new apartments has increased. Other loans to households increased mostly because of car leases, like in previous months, and there was growth of 16% over the year in such leases.

The average interest rate for long-term loans issued to companies in October was 2.1%. The average interest rate on long-term loans to companies can fluctuate depending on the different projects that have been granted loans in each month, but the average for the year has remained close to the average for last year.

The share of loans overdue in the loan portfolio remained small. The value of loans overdue by more than 60 days at the end of October was 181 million euros. The share of long-term overdue loans was reduced a little by growth in the portfolio to stand at 1.2%.

The total deposits of companies and households continued to grow strongly in October. Total deposits increased by 163 million euros during the month to 11.4 billion euros. The volume of corporate deposits grew slightly faster, increasing by 9.5% over the year, while household deposits increased by 7.5%.

Source: Bank of Estonia

Author: Mari Tamm, economist at Bank of Estonia

Erkki Raasuke to head merged DNB-Nordea bank

Erkki Raasuke, who announced on Nov.24, 2016 that he was leaving listed Estonian banking group LHV Group, is set to head the merged Baltic operation of Nordea and DNB.

“I am very pleased to accept the role of director of the future combined bank,” Raasuke said in a press release. “The way I see it, this is not just a merger but the emergence of a new, more focused and faster growing bank. I am looking forward to meeting all the employees and the opportunity to start working towards creating a clearly locally-focused bank that will bring us even closer to clients.”

Read more from ERR News

Finances of Estonian families have imrpoved

  • Three quarters of families are able to save if they need to, and the number of households with savings has risen
  • Loans have been taken by 41% of families, which is the same as two years ago, and half of the loan liabilities are related to real estate
  • Around one fifth of families are planning to take a loan in the next year, and most of them already have some loan liabilities

Around 70% of families consider the trajectory of their family to be good and three quarters believe they can make savings if they needed to. The share of families able to save was about the same before the economic crisis, but it had fallen to 65% by 2012. In the immediate aftermath of the economic crisis it was mainly families with higher incomes that saw growth in the ability to save, but in recent years families with average and lower incomes have found that their capacity for saving has improved.

The share of families with savings has increased from year to year together with incomes and the capacity to save. Data from August 2016 show that 66% of families had financial savings in cash or in a bank. In 2014, 59% of families had such savings and in 2012 only 53% did. The share of families with savings increased mainly through families with average incomes, but also to a small extent through families with lower incomes. Even so, less than half of families in the bottom third of the income distribution, with net incomes of up to 350 euros per family member) saved. The savings of Estonian families are quite small and only around half of the families who said how much they had in savings in August 2016 had more than 1000 euros.

Savings are mostly held for a rainy day to provide some safety margin above income, but there was an increase in saving for leisure activities, health, and costs of residential property. The preference was to hold savings on a bank account or at home in cash. Around 6% of families own exchange-traded securities or units in investment funds, which is a little less than 10 years ago.

In August close to 245,000 families in Estonia, or 41% of all households, had loans. These numbers have been relatively stable throughout the past six years, and loans are mostly taken for buying, building or repairing homes. However, there has again been growth in in car leases and in the use of instalment payments from shops. Higher incomes have slightly reduced the principal and interest payments of loans as a percentage of income, and that figure is below 20% for more than half of families with loans. The households with the greatest difficulties are those whose monthly loan repayments exceed 40% of their income, and 8% of the families with loans were in that category.

In the past year, 9% of families in Estonia have wanted to take a loan to buy or renovate a property. A little over half of them had their loan applications granted, which is about the same as in 2014. About as many families are planning to take a loan in the next year as did so in 2014, and 70% of them already have some loan liabilities

The survey by TNS Kantar was conducted in August this year and covered 984 families, with respondents aged between 18 and 74. The survey was commissioned by Eesti Pank.

TNS Kantar has been conducting the F-monitoring survey since 1998. The survey maps changes in how Estonian residents use money and in the options and desires behind their financial behaviour.

Source: Bank of Estonia