Banks' profit amounted to 212 million kroons in the second quarter
Jana Kask, Head of Financial Sector Policy Division of Eesti Pank
In June, the stock of loans and leasing to households and companies in Estonia declined by 1.7 billion kroons, i.e. 0.7 per cent. At the end of June, the loan and leasing portfolio totalled 243 billion kroons which is 6.8 per cent lower than a year ago. Three quarters of the decrease was due to corporate loans with the biggest fall in loans to real estate companies. Similar to the previous month, the issuing of housing loans continued to be moderate. The increase in lending activity could be expected in the second half of the year along with the pick-up in economic activity. At the same time, it is likely that in the coming months the volume of new loans will remain smaller than the volume of repayments of earlier loan obligations.
The stock of loans overdue remained relatively stable compared with the previous month. At the end of June, the volume of loans overdue for more than 60 days amounted to 7.1 per cent of the loan portfolio. During the month, long-term loan payment indebtedness of households and manufacturing sector increased, while in most other loan segments loans overdue decreased. As the economic environment recovers, problems regarding loan payments will gradually fade. However, the level of loans overdue will remain high for the entire year which is in line with the forecast of Eesti Pank.
At the end of June, provisions made for possible loan losses amounted to 5.5 per cent of the loan portfolio and 77 per cent of the volume of loans overdue for more than 60 days. In an environment of relatively high level of loan-loss provisions and with a slowdown of the growth rate of problematic loans, banks made loan write-downs in the amount of 826 million kroons in the second quarter which is considerably less than in the previous quarter.
In addition to slower growth of write-downs, banks' profitability was also supported by an increase in net interest profit as banks' cost of funds decreased. On account of these factors, banks' net profit amounted to 212 million kroons in the second quarter, after recording a loss in five consecutive quarters.
In June, household and corporate deposits decreased by a total of 291 million kroons, i.e. 0.3 per cent. Although deposits decreased characteristically to June, the fall was nevertheless smaller than in the last year and as a result the annual growth rate increased to 7.1 per cent in June from 6.5 per cent in May.
Improving economic environment has made it possible to offer financing on more favourable conditions for the borrowers. In June, the average interest rate of housing loans decreased slightly, reaching 3.2 per cent. At the same time, the average interest rate of long-term corporate loans increased to 4.4 per cent.
Figure 1. Monthly change and annual growth of household and corporate loans and leases in Estonia
Figure 2. Share of loans overdue by more than 60 days in the portfolio
Figure 3. The weighted average interest rate on housing loans and long-term corporate loans issued within a month and 6-month EURIBOR
Figure 4. Quarterly write-downs of loans and net result of the banking sector (EEK million)
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