Competition pressure has pushed loan interest rates down

Taavi Raudsaar
Economist at Eesti Pank

The average interest rates on loans issued to businesses and households have fallen over the past half year. The average housing loan interest rate fell below 2.1% in March. The last time it was that low in Estonia was four years ago. The interest rates on housing loans in Estonia are still quite high compared to those in many other countries in the euro area though. The average interest rate on loans to companies is very variable from month to month, as it depends very much on the projects being funded and the credit risk of the borrower. The interest rates on corporate loans have still mainly come down since last autumn though. The interest rates on leases issued to both businesses and households have also come down.

Surveys indicate that the access of companies and households to funding has improved. The survey by the Estonian Institute of Economic Research on the lending environment found that companies considered the willingness of the banks to lend was on average a little better in the first half of March than it was before the Covid-19 pandemic. Real estate companies were particularly optimistic, while companies in tourism and accommodation were the most pessimistic. It is probable that the sectors affected most by the coronavirus crisis will find their access to funding remains a little difficult for some time to come because of the uncertainty about the future. The Bank Lending Survey also shows that after lending conditions were tightened in the first half of 2020, they have been steadily loosened again in subsequent quarters for both companies and households.

Competition in the lending market has increased in the early part of 2021, as it did in the second half of last year. Several domestic banks are looking to grow rapidly and have gained market share in several loan segments. At the same time, some large foreign-owned banks are again active in the lending market. Alongside the increased competition, the ability of the banks operating in Estonia to lend has also helped keep the cost of borrowing down, together with the decision by the central banks of the euro area that lending conditions should be as favourable as possible during the crisis. The supply of lending is supported by the own funds built up earlier, rapid growth in deposits, and successful bond issues.

 

Please note: Eesti Pank published the statistics for credit institutions and lease companies for March on its website today. The statistical release describes the main changes in the statistics on credit institutions 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
5692 0930
press [at] eestipank.ee