Increasing economic confidence has created preconditions for lowering loan interest rates

Siret Vildo, Financial Sector Policy Division of Eesti Pank, Specialist in Charge

In November, the corporate and household loan and leasing stock declined by 1.6 billion kroons, i.e., 0.6%. The total value of financing portfolios stood at 254 billion kroons as at end-November, being 6.4% smaller year-on-year. Looking at corporate loans, the loan stock of the trading sector and other economic sectors shrank the most, whereas the stock of funds issued to the construction sector increased somewhat. The dynamics of the loans and leasing issued to households were similar to earlier months - the stock of household consumption loans and car leasing is decreasing the most rapidly.

The low interest rate continues to alleviate debt servicing costs. In November, the six-month Euribor dropped below 1%, reaching the lowest level in the past ten years. However, the interest rate did not lower for new borrowers, since margins on both housing and corporate loans rose in November. The average interest rate was 4.3% on new corporate loans and 3.4% on new housing loans. Although the aggregate interest (i.e., the key interest rate plus the margin) is currently rather favourable, those who enter long-term loan contracts should keep in mind that the very low key interest rate level will not be permanent.

The share of loans overdue by more than 60 days, i. e., overdue loans, in the loan portfolio of banks did not increase in November, either, but declined to the level of 6.3% by the end of November. This is owing to both the low key interest rate and the fact that banks are actively dealing with customers having payment difficulties. Although growth in the share of overdue loans has come to a halt, the volume is expected to start increasing again in the next months. According to Eesti Pank's forecast, the share of loans overdue by more than 60 days will reach its peak, 8%, in spring 2010.

Irrespective of the contraction in the volume and share of overdue loans, banks made provisions in the amount of about 700 million kroons in November. 68% of overdue loans were covered by provisions by the end of the month. Despite large provisions, the capital base of banks continues to be sufficient for coping with the current difficult economic situation.

As a result of the 180-million-kroon increase in household deposits and the 1.4-billion-kroon decrease in corporate deposits, the volume of non-financial sector deposits shrank by 1.2 billion kroons in November. The volume of deposits is 1.3% larger year-on-year, but if the tense economic situation persists, the resources accumulated in good times may rapidly decline.

As from December 2009, Eesti Pank starts publishing the charts "Aggregated balance sheet of monetary financial institutions" and "Analytical accounts of monetary financial institutions" which have been prepared according to ECB's methodology. In Estonia, monetary financial institutions include Eesti Pank, credit institutions, saving and loan associations and money market funds. As a result, the charts "Analytical accounts of the banking sector" and "Money supply" will no longer be published. Money supply indicators, which used to be published in a separate chart, are now included among the analytical accounts of monetary financial institutions. The objective of the change is to improve the comparability of our data with the monetary financial institutions statistics of other EU countries.

Figure 1. Monthly growth of household and corporate loans and leases in Estonia

Figure 2. Share of loans overdue by more than 60 days in the portfolio

Figure 3. The weighted average interest rate on housing loans and long-term corporate loans issued within a month and 6-month EURIBOR

The financial sector statistics and publication calendar are available on the web site of Eesti Pank at

For further information:
Ingrid Mitt
Public Relations Office
Telephone: +372 6680 965, +372 5126 843
ingrid.mitt [at]