Financing conditions are favourable for economic growth



  • The availability of financing of companies is aided by good access to bank lending, low interest rates, and profits built up earlier
  • Companies are borrowing more than before from Estonia, and less from abroad
  • Growth in household loans accelerated in 2016, but remained slower than growth in incomes and savings
  • The loan portfolio to companies and households will grow by around 5% in the years ahead, which is about the same rate as nominal GDP

The options for funding for Estonian companies remain good. This is aided by good access to bank lending, very low base interest rates, and profits built up earlier. Large and foreign-owned companies in particular continue to have good access to funds from abroad. The options for funding have been widened by the development of the non-bank financial sector, through crowd funding, private equity, venture capital and more. The main risk to financing is the continuing decline in profits, which could reduce the willingness of banks, investors and business partners to fund companies. Lower profits for companies also mean that companies have fewer internal funds available for investment.

Growth in corporate debt has been restrained by the modest level of investment and the reduction in borrowing from abroad. The stock of long-term debt liabilities used to finance investment grew by around 2% in 2016. While the volume of loans and leases taken from banks operating in Estonia increased rapidly by almost 8% last year, borrowing from abroad declined. This was because investment and borrowing have been lower in recent years than previously in those sectors, primarily energy and transport, where a large part of borrowing is from abroad. Companies also reduced their intra-group short-term liabilities. The Eesti Pank December forecast expects the growth in debt liabilities to be around 5%−6% a year on average in 2017−2019. Growth will mainly increase as investment recovers and the current large drop in short-term lending comes to an end.

The purchasing power of households and their ability to save also improved in 2016. Households were able to consume more because incomes rose and inflation was low. The rise in incomes also improved the ability of households to save. They continue to hold their savings mainly in bank deposits, which grew by 7% in 2016. The growth in deposits once again came mainly from large deposits, but there was an increase in the number of households with deposits. One driver of the rapid growth in deposits and the even faster growth in large deposits in recent years has been the notable increase in dividend income.

The growth in borrowing by households accelerated in 2016 but was still a little slower than the growth in incomes. Rising wages, low unemployment and low interest rates on loans all encouraged increased demand for loans from households. Housing and consumption loans from banks and loans from outside the banks all increased in volume. The increased size of the average loan was the main source of the growth as the number of households with debt liabilities remained at almost the same level as before. The rapid rise in wages has partly come at the expense of profits, but this cannot be sustained over the long term. The Eesti Pank December forecast expects growth in wages and in loan liabilities to slow to around 5% in the years ahead.

The capacity for lending of the banks operating in Estonia remains good. This is aided by high levels of capitalisation and profitability and by favourable financing conditions. The banks are able to grant new loans from the increase in household deposits and from repayments of earlier loans. Competition between banks in the corporate loan market was again quite strong in 2016, especially for low-risk loans to large companies, and so the interest rate on such loans fell by more than that on loans to small companies.

Financing of the Economy (formerly The Lending Review) is an annual publication by Eesti Pank on the financing needs and borrowing of the non-financial sector. It contains statistics on banking and leases, and analysis of financial accounts and credit supply and demand.

Additional information:
Ingrid Mitt
Public Relations Office
Tel: 668 0965, 512 6843
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