Growth in corporate equity has slowed
The financial account statistics published by Eesti Pank today show that the growth in the equity of Estonian non-financial enterprises has slowed in the past year and a half. The yearly growth in equity was around 2.5% in the first quarter of 2019, which is half the rate of growth in corporate debt of a little over 5%. The growth in equity has probably been restrained by the slower growth in profits, larger dividend payouts and the lack of new foreign direct investment. In the past eight years, the equity of companies has grown rapidly though, and it totalled 47 billion euros by the end of the first quarter of 2019, which was more than double the size of corporate debt liabilities. This means it is not a problem in the short term if equity grows more slowly than debt and financial leverage increases.
The growth in corporate debt has been a little faster than it was in 2018, but it remains substantially slower than the nominal growth in the economy. Corporate debt was around 19.5 billion euros at the end of the first quarter of 2019. The main growth in corporate debt has been in loans taken from banks operating in Estonia. This indicates that the tightening of lending conditions in Estonia has not made companies borrow significantly more from banks abroad or through parent companies. The Eesti Pank June forecast expects that corporate debt will grow by around 5% a year on average in the coming years.
The financial position of households improved in the first quarter of 2019, as their savings grew faster than their debt liabilities. Household deposits increased by 10% over the year, and the amount of cash households have also increased, while the favourable developments in stock markets increased the value of savings invested in securities. The assets built up in pension funds also grew. Household debt liabilities grew by 10 billion euros, or a little over 7%, which is about the same rate as incomes. The rates of growth have been about equal in loans from banks and loans from other lenders. The Eesti Pank June forecast expects the yearly growth in household debt will slow to around 6% in the years ahead.