Banks were most profitable in the second half of last year

Autori Taavi Raudsaar pilt

Taavi Raudsaar

Economist at Eesti Pank



The banks operating in Estonia were very profitable in the fourth quarter of 2023 and also over the year as a whole: in the last quarter, they earned 235 million euros in profit and 940 million euros throughout the entire year. The banks’ profitability, shown as profit as a share of assets, was around 60% higher in 2023 than the long-term average. Profits have grown fast because the income earned on loans linked to Euribor has increased strongly as Euribor has risen. Most housing loans, leases and corporate loans in Estonia have contracts that are linked to Euribor. Euribor has risen more slowly over the past six months, with its level hovering around 4%. Since the prevailing practice in Estonia is to review loan interest rates every six months, past Euribor hikes have almost completely been passed through into loan interest rates and the banks will not be profiting further from it. Apart from Euribor, the growth in banks’ interest rate profits was supported by an around 5% increase in the loan portfolio. The service fee income dropped by 4%, however.

Looking ahead, bank profitability will fall, because unlike interest income, interest expenses are likely to keep growing for some time. For the banks operating in Estonia, interest expenses mainly mean interest paid on deposits. The interest paid on money held in current accounts is very low, but the interest rates on time deposits have risen quickly. It is unlikely that the interest rate on time deposits will keep rising, but if the considerable difference in time deposit and demand deposit interest rates remains in place, then more and more money will be put into time deposits. That will mean greater expenses for the banks. At the end of last year, 34% of Estonian residents’ deposits and 27% of corporate deposits were held as time deposits, However, in 2008-2009 – the last time the interest rates were as high as they are now –, approximately half of the money in deposits was held as time deposits. The banks’ administrative expenses also grew very quickly over the last year, 18%, with personnel expenses increasing around 16%.

Companies and households have managed their loan repayments well so far, but there is a risk in future that the amount of overdue loans will grow along with loan losses. At the end of last year, 0.24% of corporate loans were overdue by more than 60 days, and 0.14% of housing loans were.  Both indicators are low compared to the results of the past few decades, and remain at around the same level as a year earlier. Since the loan quality is good, the number of additional loan write-downs by banks decreased by almost a third compared to 2022. If the economy continues to struggle for a long time and unemployment rises though, the banks will need to be ready for additional loan write-downs and loan losses.


Please note: Eesti Pank published the statistics for banks and leasing companies for December on its website today. The statistical release describes the main changes in the statistics on banks and leasing companies, covering the volume and structure of assets, loans and leases issued, deposits, and interest rates on loans and leases. The statistical release is independent of economic policy releases and is presented separately from them.

Additional information:
Hanna Jürgenson
Eesti Pank
Tel: 56 920 930
Press enquiries: [email protected]