The net profit of the banks fell in the first quarter of 2016
Economist at Eesti Pank
- Growth in the corporate loan and lease portfolio accelerated at the start of the year and was 7.3% over the year in March
- Further growth in new housing loans was more modest in the first quarter than previously
- The deposits of Estonian companies and households continue to grow faster than their bank loans
- The banking sector earned 51 million euros in net profit in the first quarter, excluding dividend income, which is one third less than a year earlier
The loan and lease portfolio of Estonian companies and households grew faster in the first quarter of 2016 than a year before. Particularly fast growth was in the volume of corporate loans and leases. The portfolio of loans and leases was 6.2% bigger in March than a year before and at the end of the month it totalled 16.3 billion euros.
Corporate borrowing activity increased in the first quarter. In the first three months of this year, 655 million euros of new long-term loans and leases were issued to companies, which was almost one quarter more than in the same period a year earlier. Real estate and industrial companies took the largest volume of new loans in the first quarter, although some of this was for refinancing existing loans. The total volume of loans and leases to companies grew by 7.3% over the year to March to 8.5 billion euros.
Demand for housing loans remained stable at the start of the year. As real estate prices rose more slowly, the growth in new housing loans was more modest at the start of the year than in the second half of 2015. The rate of growth in the portfolio of housing loans in March was the same as in previous months at 4.2%. Growth in other household loans and leases accelerated further though, and was 8.4% over the year in March. This was largely due to leases and loans for cars.
The average interest rate on new housing loans remained unchanged from previous months in March. The average interest rate for mortgages issued during the month has stood at 2.2% since the middle of last year. The average interest rate on long-term corporate loans rose because of some individual large transactions. The average interest rate on corporate loans fluctuates more because the risks around loans to companies vary more from period to period.
The share of overdue loans is still very small. The rate of loans over 60 days in arrears rose slightly in February because of specific problems in certain sectors that affected companies in some industries, but in March there was no change in the volume of loans overdue. At the end of March, 1.4% of the loan portfolio was loans that were overdue for more than 60 days.
Growth in corporate and household deposits remained fast in the first quarter. Household deposits were 7.3% larger in March than a year earlier, and corporate deposits were up 10.4%. This meant that the deposits of Estonian companies and households continue to grow faster than their bank loans. The volume of non-resident deposits has shrunk by more than one fifth since the middle of 2015 though.
The net profit of the banks fell in the first quarter of 2016. The banks made 111 million euros in net profit in the first quarter, though a large part of that was dividend income received from subsidiaries. Without that, net profit was 51 million euros, which is around one third less than in the first quarter of last year. Profit was reduced by higher income tax expenses and loan write-downs than before. There has been no particular change in net interest income and fee and commission income from a year previously.
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