The interest income of the banks fell in the fourth quarter

Autori Gaili Grüning pilt

Gaili Grüning

Economist at Eesti Pank

Postitatud:

28.01.2025

The profitability of the banks operating in Estonia has come down from its high level. Falling interest rates, including Euribor, are causing the interest income of the banks to drop faster than the interest expenses they bear on deposits and other sources of funding, and so net interest income, which is the main component of profit for the banks, has declined. The interest income of the banks was 11 million euros smaller in the fourth quarter than it was in the fourth quarter of 2023, while their interest expenses were 26 million euros larger. The total profit of the banks was 297 million euros in the fourth quarter of 2024, and they earned a little over a billion euros in profit over the whole of the year. This was helped a lot by a large transaction at the end of the year, when one bank took much larger dividends than usual from a subsidiary. Without that transaction, the profit in the fourth quarter of last year would have been 169 million euros. Relating that amount to the assets of the banks shows their profitability, and the resulting figure for the fourth quarter of 2024 is 1.5%, which is a little above the long-term average, but clearly below the figure for 2023.

The banks signed an extraordinarily large number of lease contracts in the final months of the year as new taxes gave a powerful boost to sales of cars before the end of the year. Households and companies signed lease contracts for a total of around 300 million euros in the fourth quarter, which is almost double the amount in a typical quarter. All of the biggest leasing companies operating in Estonia are owned by banks and after some quieter recent years, the growth in the portfolio of leases climbed to 9%, which is close to its long-term average. Small consumer loans are also used to buy cars, and that probably contributed to the strong growth at the end of the year in the portfolio of other loans to households, which was around 7% over the year adjusted for changes during the year within the banking groups.

The volume of household deposits was 12% larger in December than a year earlier. The growth may have been strong in the last month of the year because some of the planned extra wages and bonuses that are usually paid at the start of the new year were instead paid at the end of the old year to escape the rise in income tax. Household deposits gained a total of over 400 million euros in December. The only previous occasion when household deposits increased so much in one go was in September 2021, when the first payouts were made from the second pension pillar.

 

Eesti Pank published the statistics for banks and lease companies for December 2024 on its website today. The statistical release describes the main changes in the statistics on banks and lease companies, covering the volume and structure of assets, loans and leases issued, deposits, and interest rates on loans and leases. The statistical release is independent of economic policy releases and is presented separately from them.

Further information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
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