Jana Kask, Head of the Financial Sector Policy Division of Eesti Pank

In the first quarter, Estonia's enterprises were issued 10% more loans and leases than a year ago. Short-term financing of industrial enterprises increased 47%. Investment loan turnover growth, on the other hand, has remained relatively subdued. However, since the economy is expanding, the financing need of investment in production capacity is likely to increase, so borrowing is going up this year.

Household borrowing activity has been weaker compared to that of companies. Year-on-year, just 4% more housing loans were issued in the first quarter. The most active household credit market segment is car lease, where new transactions posted a 70% annual growth in March.

The loan and leasing portfolio keeps shrinking, since the repayment of earlier loans is outpacing the amount of new loans. The corporate and household loan and leasing stock declined by 113 million euros (0.8%) in March. The loan and leasing portfolio was 14.8 billion euros by end-March, which is 6.7% smaller than a year ago.

Loan interest rates remained at the same level as in February. The average interest margin on loans issued in March declined slightly, so the rise in EURIBOR did not have a considerable effect on the price of new loans. The average interest rates on housing loans and long-term corporate loans were 3.4% and 4.2%, respectively, in March.

The annual deposit growth rate slowed to 4% in March. The total volume of corporate and household deposits increased by 27 million euros, amounting to 7.4 billion euros. Deposit growth has been positive in recent months owing to household savings. The latter increased to some extent also as a result of income tax returns at the start of spring. Corporate deposits decreased for the third month in a row in March and their volume was 6% smaller compared to the end of 2010.

Since the economy is recovering, the loan repayment ability of borrowers has been improving steadily. Loans overdue by more than 60 days decreased by 38 million euros in March and their share in the loan portfolio shrank by 0.2pp (to 6.2%). Banks also reduced their earlier provisions for possible loan losses, which also supported their profitability.

Banks in Estonia earned a net profit of 74 million euros in the first quarter. The net profit was more than three times larger than in the previous quarter and exceeded the total earnings of 2010 by 3 million euros. The adoption of the euro has cut banks' net fee and commission income and financial income. However, the decline was offset by higher net interest income growth and their profit before loan losses was 8% larger than a year ago.

Figure 1. Corporate loans and leases issued within the quarter

Figure 2. The weighted average interest rate on housing loans and long-term corporate loans issued within a month and 6-month EURIBOR

Figure 3. Quarterly loan losses and net result of the banking sector

  The financial sector statistics and publication calendar are available at the web site of Eesti Pank.