Corporate borrowing ability has increased
Financial Sector Policy Division of Eesti Pank
Increased sales turnover and investments of companies have increased their need for financing. The growth in profits has helped companies to fund their investments partly from internal sources, while reinvested profit has boosted companies' equity.
Due to greater need for financing and better borrowing ability, companies have increased their external financing as well. The growth in direct borrowing from abroad that started in 2008 continued last year. By the end of the third quarter of last year, loans taken from abroad and securities issued abroad made up one third of the total corporate debt.
Companies have also started to borrow more actively from the banks operating in Estonia. In 2012 the turnover of both short and long-term loans increased by around 20%. The corporate loan stock started to grow at the start of 2012, and in December the year-on-year growth reached 5%. Eesti Pank's autumn forecast expects the growth in loan turnover to slow somewhat as the reference base changes, and the total volume of loans will increase in the next few years by around 6%.
The financial position of households (financial assets minus liabilities) has improved due to the growth in the value of financial assets. The annual growth in deposits reached almost 8% at the end of last year, but the growth in household deposits has been uneven with the rapid growth being seen in large deposits. The cautious attitude of households towards lending can still be seen in the continuing decline in non-housing loans. New loans were mostly taken in 2012 for purchases of cars and residential properties. Eesti Pank forecasts that the portfolio of housing loans will start to grow again this year after shrinking for four years.
The high capitalisation of the Estonian banking sector and the improved funding base will give a good foundation for the financing of the real sector. Although loan turnover has increased, the increased domestic cash flows from loan repayments and growing deposits have so far been sufficient to bear the domestic loan turnover. Credit conditions tightened somewhat and interest margins rose last year due to the uncertainty caused by the sovereign debt crisis in the euro area and the more conservative lending policies adopted by banks.
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