Corporate borrowing increased slightly in the spring and early summer

Autori Taavi Raudsaar pilt

Taavi Raudsaar

Economist at Eesti Pank



Corporate borrowing picked up somewhat in the second quarter. New long-term loans were issued to companies by almost a third more than in the first quarter (see Figure 1). This was largely due to seasonal factors, i.e., borrowing normally increases with the onset of spring and summer. However, part of this was probably also because the high level of uncertainty about the growth of input prices, elevating interest rates and general economic developments has somewhat eased. This supports corporate investments and borrowing. Overall, demand for corporate loans is still rather modest. The volume of longer-term loans denominated in euro were 16% more than in the second quarter of 2019, before the corona crisis. However, input prices have increased rapidly in the meantime.

Loan growth varies widely across sectors depending above all on their economic performance. The largest year-on-year growth in loan stock, by almost a third, was in the infrastructure sector (see Figure 2). The rapid growth comes mostly from loans to energy companies as well as to information and communication enterprises. The growth rate of loans to the agricultural sector is still around 10%. The loan growth of real estate companies, which led loan growth for a long time, has decreased, but remains slightly higher than the average of the business sector. On the other hand, the loan stock of manufacturing and logistics companies has fallen significantly this year, because these sectors are having a difficult time.

Companies assess the credit environment to be poor, because interest rates are rising and the economic outlook is uncertain. The assessment became more positive in the second quarter, though (see Figure 3). The small improvement took place in a majority of sectors, exempt of manufacturing companies and the hotels, which observed that the lending environment had become less favorable. The average interest rate on long-term corporate loans has risen from below 3% a year ago to around 6% this summer. The growth is due to the increase in Euribor, while the interest margin has been decreasing (see Figure 4). Although the ability of enterprises to borrow has suffered somewhat due to escalating interest rates and other costs, it is nevertheless still good. Profits have been increasing steadily in many areas of activity, and previously accumulated buffers in the form  of deposits and equity are significant. This is very likely the reason why just less than 10% of enterprises are seeing financial problems as their main concern and why there are still quite a few companies in trouble with loan repayments.