Loan portfolio continued to contract in February
Jana Kask, Head of the Financial Sector Policy Division of Eesti Pank
The total volume of loans and leasing to enterprises and households increased by 0.4 billion kroons, i.e. by 0.1% in January, amounting to approximately 252 billion kroons by the end of the month. The extraordinary rise in loan volume was due to a large syndicated loan in the energy sector. In the same period, more than 0.8 billion kroons worth of (already issued) corporate loans were reclassified by the banks into general government loans. The one-time large loan transaction and changes in the statistics left aside, the decrease in the portfolio would have been similar to the development seen in previous months.
Partly due to seasonal factors, the housing loan market was sluggish in January. New housing loans were issued more than 40% less than a year ago. The turnover of car leasing represented a half of that recorded in the beginning of 2009. This also refers to a weak domestic demand.
The increase in deposit volume continued to be strong in January. The lowering of deposit interest rates which started at the end of 2009 has not had a significant influence on the structure of deposits so far. The total volume of corporate and household deposits increased by 2.3 billion kroons, i.e. by 2.1%. Year-on-year, the growth reached 5.8%. The share of households' time and savings deposits has remained at 60%.
Loan interest margins have remained similar to those recorded in autumn 2008 when banks' risk assessment tightened due to global financial crisis and decline in the economic environment in Estonia. As several risks which prevailed a year ago have considerably decreased and soundness of economy has increased, there are now prerequisites for the lowering of interest margins. In January, interest rates on new loans remained broadly unchanged. The average interest rates on housing loans and long-term corporate loans issued within the month were 3.4% and 4.5%, respectively.
In January, the share of loans overdue by more than 60 days in the portfolio was 6.4%, having remained at a relatively similar level for the last six months. However, at the beginning of this year, corporate and household short-term outstanding payment commitments started to increase again. According to the autumn estimates of Eesti Pank, the labour market conditions will have a dampening effect on the improvement of household solvency in the coming months. At the same time, a larger accumulation of problem loans was already seen in the first half of 2009 and as the economic environment improves, the loan quality will also improve.
Despite of write-downs, the capitalisation of banks has remained strong. At the end of 2009, the total capital adequacy of banking groups operating in Estonia was 15.7% which denotes a sufficient buffer in the light of minimum requirement of 10%. With the aim of anticipating possible loan losses, the banks made write-downs in the amount 122 million kroons in January which is considerably less than in any month of 2009.
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 www.bankofestonia.info/pub/en/dokumendid/statistika/pangandusstatistika/tabelid/.
For further information:
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Telephone: +372 6680 745, +372 5275 055
E-mail: viljar.raask [at] eestipank.ee