Corporate debt is growing more slowly than the economy is
Economist at Eesti Pank
The financial account statistics published by Eesti Pank today show that the growth in the debt of Estonian companies has accelerated a little this year. Companies invested more in the first half of 2019 than they did in previous years, and so they borrowed more to fund the investment. Even so, the growth of 4% in corporate debt over the year in the second quarter was notably less than the nominal growth in the economy.
Companies mainly borrow from banks operating in Estonia, and the loans and leases taken from them grew by 5% over the year in the first half of this year, which is more than the 4% growth in borrowing from abroad or the 1% in funds accessed from parent companies. Total corporate debt liabilities stood at 19.8 billion euros at the end of the second quarter. The rate of growth in bank loans has slowed though from previous years, which may reflect a slight tightening of lending standards in some places and higher interest margins. The volume of debt liabilities from abroad has started to grow again in 2019 after remaining static for some years.
As corporate profits are growing more slowly, corporate equity is also growing at a falling rate. The total volume of corporate equity was 1.4% smaller at the end of the second quarter than it was a year earlier because of a one-off write-down of the value of assets at the end of last year.
Households continue to borrow strongly. Rising incomes and increased confidence helped keep the demand for loans strong in the first half of the year. Debt liabilities increased by more than 7% over the year, or at the same rate as incomes. Total household debt was above 10 billion euros at the end of the second quarter. A majority of the growth came in housing loans and car leases taken from banks. The growth in loans from other lenders, which account for some 6% of total household debt, was a little slower. The risks from the rapid growth in household borrowing are partially eased by rising incomes and increased savings. Household savings continue to grow faster than their debt liabilities. The deposits of households grew by 10% over the year to 8.3 million euros.
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