Household loans are growing at an ever faster rate
Economist at Eesti Pank
- The growth in the stock of household loans has caught up with growth in incomes
- Interest rates on housing loans have increased slightly in 2017, but they remain low
- The volume of deposits is growing faster than the portfolio of bank loans and leases
The stock of loans and leases issued to companies and households by banks operating in Estonia stood at 17.6 billion euros in July, which is 5.9% more than a year earlier. Growth was slightly slower than in previous months because companies were borrowing a little less. In contrast, loans to households are increasing at an ever faster rate.
The annual growth in the stock of loans and leases to companies slowed to 5.2% at the end of July. The slower growth does not necessarily mean that the growth in the total debt of companies has slowed, as there has been some slight growth in 2017 in borrowing from abroad and from parent companies, which had slowed in the past couple of years. The growth in credit has been faster than the average in agriculture and forestry and in the transport sector.
The annual growth in the stock of loans and leases to households picked up to 6.6% by the end of July. The rise in the average income has been about the same in recent quarters. Faster growth in loan liabilities would increase the risk of households being unable to repay their loans. Demand for housing loans is high, and the volume of new housing loans issued in the past three months is 16% higher than during the same months of last year. Some two thirds of this comes from increased activity in the credit market as the number of loan agreements has risen. The average amount borrowed has also increased. Rising incomes and increases in confidence have also seen the take-up of car leases and consumption loans increase.
Interest rates on housing loans have risen a little in 2017, but they remain low. Increased demand for credit has allowed banks to increase their loan margins slightly. This means that the average interest rates on loans granted is 0.3 percentage point higher than at the start of the year and is now 2.4%. The average interest rate on long-term loans granted to companies was also 2.4% in July.
The total deposits of companies and households again increased faster than the portfolio of loans and leases. The rapid growth in deposits has accompanied the continuing rapid growth in the economy and in incomes. The total volume of deposits was 11% higher in July than a year ago at 12.3 billion euros. Household deposits were 8% higher in July than a year ago but corporate deposits were up by some 15%.
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