Companies are borrowing from other sources alongside banks
Corporate debt grew faster last year, at a rate that reached around 6% at the end of the third quarter. Estonian companies again borrowed mostly from banks operating in Estonia, but they also used other sources of loans more than they did last year. Household debt grew fast because the labour market remained favourable and supported strong demand for loans.
Corporate debt grew faster in 2019 as yearly growth in it reached some 6% at the end of the third quarter so it stood at 20 billion euros. The growth was probably boosted by an increase in investment in fixed assets. Companies funded the investment with loans and also by using more of their own funds than before. One indicator of this is that the growth in corporate deposits has slowed a little.
Estonian companies again borrowed mostly from banks operating in Estonia, but they also used other sources of loans more than they did last year. Loan liabilities to the banks operating in Estonia made up 48% of all the debt liabilities of Estonian companies at the end of the third quarter. This means that the banks still remain the most important source of debt capital for companies. It is notable though that the growth in borrowing from banks in Estonia slowed in 2019. The growth in investment meant that demand for loans was strong at the same time and more was borrowed from other sources, so it may be that the lending conditions of the banks have tightened. Borrowing from abroad increased in 2019, having been gradually declining in recent years, and it accounted for 33% of borrowing from all sources. Borrowing from the non-bank financial sector and from other non-financial companies also grew faster than previously.
The growth in corporate debt will be a little slower in future and the Eesti Pank December forecast expects it will be close to 5%. It will grow more slowly as the growth in corporate investment and demand for loans weakens. Funding options on the supply side will not change much and Estonian companies will mainly borrow from banks operating in Estonia in the future. Larger and foreign-owned companies will be able to borrow abroad in future, giving them an alternative to borrowing from local banks. Many companies have built up large stocks of funds and so are well able to finance their investments, meaning they have little need for new loans.
Household debt grew quickly in 2019 and totalled 10.5 billion euros in the third quarter. It is probable that the growth peaked in the first half of the year though. Demand for loans is strong as the labour market continues to favour employees, and in consequence wages are growing fast and confidence is high. An active market for residential property and increasing investment in it kept the yearly growth in the stock of housing loans strong at 7%. The earlier very fast growth in consumer loans slowed notably in 2019, and so loans issued by other creditors grew less than bank loans and leases did. The total debt of households was 7% larger at the end of the third quarter than a year earlier. The growth in it is likely to slow only a little in future as the labour market will remain relatively favourable for employees even as the economy grows more slowly.
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