Credit market remained sluggish in March
Jana Kask, Head of the Financial Sector Policy Division of Eesti Pank
In March, the corporate and household loan and leasing stock declined by 2.7 billion kroons, i.e., 1.1%. The loan and leasing stock stood at 247 billion kroons at the end of the month, being 6.6% down on the same period a year ago. The loan stock of the corporate sector has contracted more in the first months of the year.
Borrowing activity remained subdued also in March. The volume of corporate loans within the month was just 1.4 billion kroons, which is the smallest credit turnover of recent years. The issuance of new loans decreased the most in real-estate related business areas. However, after the extensive shrinkage in the loan stock, the financing of trading companies has started to pick up again - the sector was issued more than a third more loans compared to the previous year. Irrespective of a slight recovery in the real estate market, the turnover of housing loans was still relatively small in March, remaining notably below the average of 2009.
The volume of overdue loans did not change in March compared to February. The share of loans overdue by more than 60 days increased somewhat as a result of a contraction in the portfolio, amounting to 6.7% by the end of the month. The share of overdue housing loans remained unchanged at 4.5%. The growth rate of problem loans has notably slowed in recent months - in the first quarter of 2010, banks' write-downs amounted to 1.3 billion kroons, which is nearly half less than the average of two previous quarters.
Provisions to cover possible loan losses were the main reason why the Estonian banking sector posted a loss of 272 million kroons in the first quarter of 2010. Pre-provisions profitability was supported by an increase in net interest income, which was, in turn, propped by a decrease in the funding costs of banks. Despite the loss, the capitalisation of banks has remained high, mostly owing to decreasing risk assets. The existence of sufficient capital buffers supports the financing of the economy in the new growth cycle, where the income prospects of borrowers improve and their need for financing increases.
The volume of corporate and household deposits amounted to some 112 billion kroons at end-March, having grown by 1 billion kroons, i.e., by 0.9% during the month. The decline in deposit interest rates has started to impact the structure of deposits - the share of household time deposits decreased from 61% to 58%, year-on-year, in March 2010.
Loan interest rates have not changed much over the past six months. The average interest rates on housing loans and long-term corporate loans issued in March were 3.4% and 4%, respectively.
Figure 1. Monthly growth of household and corporate loans and leases in Estonia
Figure 2. Share of loans overdue by more than 60 days in the portfolio
Figure 3. The weighted average interest rate on housing loans and long-term corporate loans issued within a month and 6-month EURIBOR
Figure 4. Quarterly write-downs of loans and net result of the banking sector (EEK million)
The financial sector statistics and publication calendar are available on the web site of Eesti Pank at www.bankofestonia.info/pub/en/dokumendid/statistika/pangandusstatistika/tabelid/.
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