The banking sector earned 84 million euros in net profit in the third quartert
Economist at Eesti Pank
- Demand from households for loans increased, demand from companies remained the same
- The average interest rate on new long-term corporate loans fell
- Both the income and the expenses of the banking sector increased
The growth in housing loans continued to accelerate in the third quarter, and in September the portfolio was up 6.5% over the year at 6.9 billion euros. Demand for loans is supported by the rapid growth in the average wage, and also by confidence about the future, which is at its highest level of recent years. The level of activity in the housing market has remained high and prices have risen steadily. The banks issued a total of 10% more in housing loans in the third quarter than they did a year earlier, but the rate at which new loans have been added has slowed in recent months. Car leases continue to see rapid growth and the volume of them was 15% larger than a year previously.
Demand for corporate loans has remained stable. In the third quarter, 5% less was issued to companies in new long-term loans than in the same quarter of the previous year. Real estate companies took around one third of the new long-term loans, and industrial companies a little over 15%. The portfolio of loans and leases to companies shrank in August and September though, as one bank moved some of its existing loans into the portfolio of its foreign parent company.
The average interest rate for new corporate loans fell in the third quarter, but the average interest rate on new housing loans rose. Demand for corporate loans is stable and the competition between the banks is quite tight, and so the interest margins on corporate loans have fallen. Demand for loans from households has increased however, as the group of lenders is smaller than in the corporate loan market, making it more possible to raise interest margins. The average interest rate for long-term loans taken by companies was 2.05% in September, and the rate for housing loans was 2.4%.
The deposits of Estonian companies and households grew rapidly in the third quarter. The growth in the volume of corporate liquid assets has been aided by increased sales revenues. Corporate deposits were up 12.5% over the year in September at 5.8 billion euros, while household deposits increased by 9% to 6.6 billion euros. The growth in household deposits was driven by the rise in the incomes of wage earners. So in the same way that borrowing has increased strongly, the financial buffers of companies and households have also increased.
The net profit earned by the banking sector during the third quarter was at a similar level to that earned in previous quarters. The banking sector earned 84 million euros in net profit in the third quarter, which is 3% more than in the same quarter a year ago and is equal to 1.4% of total assets on an annualised basis. The growth in income was supported by an increase in net interest income, which came from growth in the loan portfolio, and a rise in the average interest margin earned on it. Administrative costs increased at the same time and loan provisions remained small.
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