Decline in loan provisions increased banks' profitability in the third quarter

Jana Kask, Head of Financial Sector Policy Division of Eesti Pank

The corporate and household loan and leasing stock declined by one billion kroons (i.e. 0.4%) in September, amounting to 240.1 billion kroons by the end of the month. In the third quarter the contraction in the loan portfolio continued at almost the same pace as in the previous quarter. Year-on-year, the total loan and leasing stock was more than 6.3% smaller at the end of September.

New loan and leasing contracts increased by nearly a third compared to August. Loan turnover growth was most affected by large-scale real estate transactions and the issuance of study loans accompanying the start of a new academic year. However, demand for study loans was weaker than in earlier years: new loans were issued in the amount of 141 million kroons, which is 28% less on 2009.

The increase in lending activity is more stable in the housing loan market, where the stock of loans issued in September (610 million kroons) was the largest in the past year and a half. The average interest rate on housing loans decreased to 3.3% in September, pointing to a slight decline in margins against the backdrop of increasing Euribor. The average interest rate on long-term corporate loans dipped to 3.6%, caused by the larger share of loans with a lower risk margin.

The stock of overdue loans declined in September. The share of loans overdue by more than 60 days decreased by more than 900 million kroons in a month, making up 7% of the loan portfolio. Companies were more successful in improving the quality of their debt liabilities, whereas the share of housing loans with longer-term repayment delays continued to stand at 4.6% of the loan portfolio. With customers' repayment problems withdrawing, banks have started to decrease their reserves created to cover possible loan losses. At end-September, the stock of provisions stood at 5.5% of the loan portfolio.

Banks' third-quarter net profit amounted to 754 million kroons. Net write-downs of loans in the third quarter made up 276 million kroons, which is three times less than in the second quarter and made a considerable contribution to banks' profitability. In addition to declining write-downs, profitability growth was also supported by an increase in net interest income and saving on administrative expenses.

Household and corporate deposits grew by 1.2 billion kroons in September, totalling 112.4 billion kroons by the end of the month. Corporate deposits, which have displayed faster growth, are 7% larger than at the start of the year. The growth pace of household deposits has been more modest, but it is still positive year-on-year.

Figure 1. Monthly change and annual growth of household and corporate loans and leases

Figure 2. Share of loans overdue by more than 60 days in the portfolio

Figure 3. Quarterly write-downs of loans and net result of the banking sector

Financial sector statistics and its publication calendar are available on the web site of Eesti Pank at

For further information:
Ingrid Mitt
Public Relations Office
Telephone: +372 668 0965, +372 512 6843
ingrid.mitt [at]