Bank profits decreased somewhat in the second quarter
Economist at Eesti Pank
- Borrowing by households remained large in June
- The average interest rate for new housing loans has risen slowly
- Household and corporate deposits continued to grow strongly
Households continued to borrow actively in June, and the demand for car leases remained especially large. The value of new car leases signed in June was 30% more than a year earlier, and the annual growth of the car lease portfolio reached 20%. The annual growth of other consumer loans was also rapid at almost 9%. The fast increase of consumer loans reflects both the current favourable economic environment and increased supply. Consumer loans and leases make up around one fifth of the total loan and leasing portfolio of households.
The stock of housing loans grew in June at around the same rate as it had in previous months. 117 million euros’ worth of new housing loans were taken out, which was 12% more than a year earlier. The growth stems from higher-priced real estate and larger average loan sums, but also from the fact that more transactions were made. The annual growth of the housing loan portfolio has been close to 7% over the past six months.
Corporate loan growth has been more moderate than household loan growth due to low investment activity. However, companies’ loans from banks operating in Estonia did increase in the second quarter. The stock of new loans grew in all major sectors compared to the year before, and the increase of the loan portfolio has been relatively homogeneous.
The average interest rate for new housing loans has risen somewhat since the start of the year, reaching 2.5% in June. Despite being the highest level of the past four years, it can still be considered low long-term. The average interest rate of new corporate loans largely depends on the kind of companies that sign loan contracts over a specific period and the kind of projects they undertake, and it can therefore fluctuate quite a lot. In July, it was down to 2%.
The deposits of Estonian households and companies grew rapidly alongside active borrowing. The stock of deposits held by banks increased by almost 12% or 13.8 million euros in a year.
The net profit of the banking sector fell a bit in the second quarter of 2018. The net profit of the quarter was 82.5 million euros in total, which was 3% less than in the previous year. At the same time, net interest income rose by almost 3% year-on-year, mostly thanks to smaller interest expenses. Service fee income increased, as did wage costs and administrative costs. One-off factors boosting profit were the reversal of previous provisions, and dividends from subsidiaries. As a result of the new income tax rules that took effect at the start of the year, banks calculated around 8 million euros for income tax expenses in the second quarter.
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 The corporate loan portfolio shrank over the year as one bank moved a substantial share of its loans to the portfolio of its foreign parent bank in the autumn. Without that, the yearly growth in the corporate loan and lease portfolio would have been around 6%.