Estonia's credit market is adjusting to weaker investment demand and increased uncertainty
Siret Vildo, Financial Sector Policy Division of Eesti Pank, Specialist in Charge
In January, the corporate and household loan and leasing stock declined by 1.1 billion kroons, i.e., 0.4%. The financing portfolio decrease was broad-based with the loan and leasing portfolio shrinking the most in respect of real estate related enterprises, trading companies and manufacturing companies. The mortgage loan portfolio reflects the low of the real estate market, which has partly been caused also by weaker property market activity characteristic of winter months. Repayments of earlier mortgage loans exceeded the volume of new loans for the second consecutive month. The mortgage loan portfolio volume dropped by 124 million kroons in January.
The volume of household and corporate deposits declined by 1.5 billion kroons, i.e., 1.4%, amounting to 104 billion kroons. Whereas household deposits grew by 111 million kroons to 53.9 billion kroons in January, the volume of corporate deposits shrank by 1.6 billion kroons. The annual deposit growth rate declined to 2.7%. The share of time deposits became even more prominent in the total volume of deposits in January - household time deposits accounted for 61% and corporate time deposits for 42% of the total deposit volume.
The deteriorating economic environment has brought along difficulties with paying back loans. The share of loans overdue by more than 60 days increased from the level of 2.9% of the loan portfolio in December to 3.6% in January. Nearly a half of the new loans overdue by more than 60 days recorded in January was credit to real estate related enterprises. The volume of mortgage loans overdue by more than 60 days grew by 453 million kroons (from 1.9% of the portfolio in December to 2.3% in January). The volume of overdue loans is expected to increase in the next months as well.
Te average capital adequacy of banks rose from 18.8% in December to 19.6% in January. Banks have used their recent years' profits to form considerable capital buffers, which can be used to cover loan losses in the current complex economic situation.
International money market interest rates have continued to drop, which is beneficial for borrowers. As key interest rates fell, the average interest rate on new housing loans and long-term corporate credit issued in January sank to 4.9 per cent and 5.4 per cent, respectively. The decline in money market interest rates affects most of all earlier borrowers' interest payments, which should shrink considerably in the next months.
Figure 1. Annual growth of financing portfolios by sectors
Figure 2. Corporate and household deposit volume and annual growth
Figure 3. Interest rates on new long-term mortgage and corporate loans
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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