Raoul Lättemäe, Senior economist, Financial Stability Department of Eesti Pank

Financial positions in Estonia continued to improve in the third quarter of last year. Financial assets increased by 300 million euro (over 4.6 billion kroons) more than financial liabilities, reducing the economy's net liabilities to the external counterparties to 75.1% of GDP by the end of the quarter.

The real sector's financial assets, however, did not change much in the third quarter. Companies' financial assets increased by 58 million euro (915 million kroons), posting a mere 0.2% growth year-on-year. Like in the third quarter, most of the growth resulted from an increase in liquid assets and in receivables. Meanwhile, corporate deposits with domestic banks decreased and claims to other companies and to the external sector increased. This is in line with recovering economic activity. Financial liabilities grew as well, by 3.1% year-on-year, for the most part due to an increase in foreign owners' reinvested profits in Estonia and in corporate payables. At the same time, loans and the financial leverage of companies continued to shrink.

The financial assets of households decreased by 17 million euro (273 million kroons) in the third quarter. The contraction occurred mostly due to a decrease in the stock of deposits, whereas households' investment in securities and in pension insurance payments continued to increase. The stock of households' financial assets grew by 6.7% year-on-year. The stock of loans has been on the decrease as a result of household credit demand, which continues to be modest. Households' financial liabilities decreased by about 95 million euro (1.5 billion kroons) in the third quarter.

The general government's financial assets grew in the third quarter, owing to seasonal factors and higher tax revenues. Both funds deposited in Estonia and investments in foreign securities increased, totalling 266 million euro (4.2 billion kroons). Liabilities of the general government increased too, but not extensively, making the sector the largest contributor to the improvement in the economy's financial position in the third quarter.


Figure 1. Net lending (+) and net borrowing (-) in the total economy over the quarter and the contribution of different sectors

The financial accounts of the national accounts system reflect the financial assets and liabilities and respective transactions and other changes in assets and liabilities of both different economic sectors and the economy as a whole. Net lending (+) and net borrowing (-)is the balancing indicator of the transactions account, representing the difference of transactions with financial assets and liabilities made in the period under review. An economic sector is a net lender, if the net acquisition of financial liabilities exceeds the net incurrence of financial liabilities over the same period, or if the decrease in financial liabilities exceeds the materialisation of financial assets over the reference period.