Banking sector profits are still solid despite loan provisions
Economist at Eesti Pank
The banks operating in Estonia are making more provisions due to the uncertainty surrounding the coronavirus, whereas the volume of provisions is still relatively small. Banking sector profits reached 112 million euros in the second quarter of 2020, which is 10% more than a year ago. Profits have been driven by dividends from subsidiaries and stable net interest income. In addition, banks’ operating expenses declined by 14% in the second quarter, compared to a year earlier.
Annual growth in the loan and lease portfolio of Estonian companies and households was 1.1% at the end of June 2020. The corporate loan portfolio, however, declined by 2.8% over the year. Growth in the total loan portfolio has been boosted by housing loans, which have increased by 6.2% over the year.
The volume of new loans issued to households and companies recovered slightly in June from the previous month but is still significantly lower than a year ago. New long-term loans to companies amounted to 146 million euros, which is approximately half of the volume a year ago, and new housing loans to households shrank by a quarter, totalling 85 million euros.
In June, the market for new car leases picked up considerably, exceeding 37 million euros, but compared to June 2019, the volume still remains lower by about 25%. Growth in the consumption of durable goods, such as cars, may signal a slight improvement in consumer confidence.
The liquid assets of the non-financial sector continued rapid growth in June. Annual growth in household deposits has been record high in the past three months since 2012, exceeding 11% in each month. In June, household deposits increased by 885 million euros over the year to 8.7 billion euros. Annual growth in corporate deposits remained solid too at 13.6%, growing by 892 million euros to 7.5 billion euros.
The interest rates on loans issued in Estonia have been stable in light of the current economic uncertainty. In June, the interest margins on long-term corporate loans and housing loans with collateral were 2.9% and 2.3%, respectively.
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 This was partly due to the reason that the portfolio of one bank was taken out of Estonia.