Low levels of investment activity mean that companies are borrowing less than before
Economist at Eesti Pank
- Corporate debt liabilities shrank in the third quarter of 2016 despite the rapid growth in bank loans
- Growth in household loans accelerated, but remained slower than growth in incomes and savings
- As before, more financial assets were invested abroad or returned there than were taken in from abroad
Growth in household loans has become faster, but it is still a little behind the growth in incomes and savings. The volume of household loan liabilities was almost 7% larger at the end of the third quarter of last year than a year earlier. There has also been an increase in the take up of housing loans, car leases and consumption loans. The growth is partly due to an improvement in the quality of data on consumption loans and payments in instalments. Otherwise the growth in loan liabilities would have been around 5.5%. The deposits of households grew by around 8% in the third quarter of 2016, mainly because of continuing rapid growth in wages. Despite the rapid growth, the financial savings of Estonian households in relation to incomes are still below the European Union average.
Weak investment activity means that companies are borrowing little. Borrowing from abroad has declined but borrowing from Estonia has increased. The stock of loans from banks operating in Estonia was some 5% larger at the end of the third quarter of 2016 than a year earlier. The amount taken in loans from abroad or issued as bonds abroad shrank by around 7% at the same time. One cause of the increase in the share of domestic bank loans is the improvement in lending conditions. Furthermore, investment and borrowing have been lower in recent years than previously in those sectors, primarily energy and transport, where a large part of borrowing is from abroad. This has resulted in lower foreign borrowing. There has also been a large decline in short-term intra-group loan liabilities. Total corporate debt liabilities in the third quarter were 18.2 billion euros, or about 2%, less than a year earlier.
Corporate liquidity indicators and equity are at their highest of the past decade. Low investment in fixed assets has allowed companies to use the funds freed up to increase their liquid assets. Corporate liquidity indicators also improved because of the reduction in short-term debt liabilities. Reduced profits and larger dividend payouts have meant that corporate equity has grown more slowly than before.
The Estonian economy was again a net lender to the rest of the world in the third quarter. In most quarters since 2009, Estonian residents have put more funds abroad than they have taken in from abroad, reflecting the decline in investment in the Estonian economy and increased saving by households. Increased saving and the position as a net lender have led to an improvement in the figures for the external debt and the international investment position, but low investment equally restricts the future capacity for growth of the economy.
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