The borrowing activity of Estonian companies and households remained strong in January

Mari Tamm
Economist at Eesti Pank
  • Companies took out 11% more in long-term loans in January than a year earlier
  • Demand from households for loans remains strong
  • The growth in car leases to households is boosted further by the effect of tax changes
  • While borrowing increased strongly, bank deposits were also up over the year by 10%

Estonian companies borrowed actively in January 2018 from banks and lease companies operating in Estonia, like at the end of the previous year. Investment by companies in fixed assets has increased and this is mirrored in an increase in borrowing activity. The 198 million euros of new long-term loans and leases was 11% more than was issued in the same month a year earlier. Companies in almost all sectors took out more long-term loans than a year previously. The portfolio of corporate bank loans was smaller than a year earlier however, as one bank transferred a part of its loans to the portfolio of its foreign parent bank in the autumn. Without this the portfolio of corporate loans, leases and factoring would have grown by 6-7% over the year.

The borrowing activity of households also remained strong in January. New housing loans worth 93 million euros were issued, which was 17% more than in the same month a year earlier. The portfolio increased by 6.7% over the year. New car lease agreements were signed at a particularly fast rate, and their value was 57% more in January than a year previously. The portfolio of car leases grew by 17%. Car leases to households have been affected in recent months not only by the rapid growth in incomes, but also by the change that came in from the start of 2018 to the taxation of vehicles owned by companies, which has affected the lease agreements on company cars and led private individuals to take them over. A little more was taken in overdrafts and credit card loans than a year earlier, and the stock of such loans increased by 2.2% over the year.

The average interest rates on new loans rose a little in January. The average rate on new housing loans fell in the last quarter of last year, but rose again in January to 2.4%, which is more or less the same level as in the middle of last year. The average interest rate on new long-term corporate loans rose to 2.7% in January. The average interest rate largely depends on which companies have signed which loan contracts for which projects in the particular period. Tight competition between banks has led interest margins on loans to large companies to fall in recent years, and at times this has also substantially affected the average interest margin. There has however been no noticeable general fall in the interest margins for companies.

As companies and households have borrowed extensively, so financial buffers have also continued to increase. Corporate deposits in banks operating in Estonia declined a little in January to 6 billion euros, but they increased strongly by around 10% over the year. The growth in household bank deposits is affected by the relatively rapid growth in incomes. Household deposits were up 9.7% over the year in January at 6.9 billion euros.

While borrowing increased strongly, bank deposits were also up over the year by 10%

 

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