Growing interest income and good loan quality support the strong profitability of banks
Economist at Eesti Pank
Households continued to borrow at a fast pace in June
The deposits of companies and households were up 11% over the year
The ability of companies and households to service their loans is good, which keeps bank loan losses low
The stock of loans and leases from banks to companies and households was 6% larger in June than a year earlier at 17.5 billion euros. Loans to households grew faster, but the increase in corporate lending decelerated slightly compared to its previously strong growth.
Compared to last year, companies took out 5% more loans and leases from banks in the second quarter of 2017. The growth of short-term financing became more rapid as economic activity increased. Long-term loans and leases for companies as a whole grew rather modestly at 3%, but the situation varied across sectors. The volume of new loans increased substantially in the industrial, transport and real estate sector, while retail companies took out significantly less in loans than a year ago. The yearly growth in the stock of the corporate loan and lease portfolio slowed down somewhat, to 5.7% at the end of June.
Household borrowing activity has remained strong on the back of improved confidence and increased income. Around 15% more was taken in new housing loans in the last three months than at the same time last year, and 17% more in car leases. The yearly growth in the housing loan portfolio accelerated to 6.2% in June and the growth in the volume of car leases remained high at 14%.
Loan interest rates have not changed much over the past months. The average interest rate on new housing loans increased slightly due to a rise in the interest margin, from 2.3% to 2.4%, but remained low. The average interest rate for long-term loans taken by companies in June was 2.3%.
The share of loans overdue by more than 60 days in the loan portfolio fell to 0.9%. The reduction in overdue loans shows the borrowers’ good ability to service their loans thanks to faster economic growth and still very low base interest rates. The volume of long-term overdue loans fell by around 25% in a year.
Deposits continue to grow rapidly. Estonian companies and households held 12.3 billion euros in deposits at banks at the end of June, which was 11% more than a year before.
Banks earned more than 85 million euros in net profit in the second quarter. The net profit made up 1.4% of assets, which is a bit higher than the level of the past two years. Profitability was mainly supported by net interest income, which grew 6.5% year-on-year. The fact that loan losses continued to be small and administration costs were lower also had a positive impact.