The net profit of the banks was boosted in the third quarter by interest income
Deputy Head of the Financial Stability Department of Eesti Pank
- Households are taking ever larger amounts in housing loans and car leases
- The deposits of companies and households were up 8% over the year
- The net profits of the banks grew by 5% in the third quarter, mainly thanks to increased interest income
Corporate borrowing activity generally remained at the same level in September as in the preceding months. Banks issued 255 million euros in long-term loans and leases to companies in September, about one quarter of which went to energy companies. Companies in real estate and construction, whose loan liabilities have increased the most in volume in recent years, received less in long-term loans in September than in previous months. The stock of loans and leases to the real estate sector accounts for a significant 36% of the total value of loans and leases to companies.
Household borrowing continued to grow quite fast in the third quarter. Around 12% more was taken in new housing loans than at the same time last year, and 8% more in car leases. Both these figures for growth mainly reflect the rise in the average amount granted in financing, as the number of loan and lease contracts signed has not increased as fast. The yearly growth in the housing loan portfolio accelerated to 4.8% in September and the growth in the volume of car leases remained high at 16%.
The total volume of loans and leases to Estonian companies and households was 5.7% larger in September than a year earlier. The financing portfolio grew by 13 million euros during the month to 16.8 billion. This was quite a modest rate of growth next to those recorded in the past 12 months, as the stock of loans to companies shrank. The volume of the corporate loan and lease portfolio was still more than 6% larger than a year earlier.
The loan quality of the banks is still good. The volume of loans overdue by 60 days or more was slightly larger in September than at the start of the year, but such loans still accounted for only a quite small 1.2% of the total size of the loan portfolio.
Interest rates for loans barely changed at all in September. The average interest rate for new mortgages granted was 2.4%, and that for long-term corporate loans was 2.3%.
Deposits continue to grow rapidly. Estonian companies and households held 11.2 billion euros in deposits at banks at the end of September, which was 8% more than a year before. Some 100 million euros was added to bank accounts during the month, most of it from companies.
The banks earned around 5% more in net profit in the third quarter than in the same quarter of last year. The main driver of the growth in profit was the increase in net interest income, which in turn was supported by relatively rapid growth in the loan portfolio and the continuing increase in the share of loans with higher interest margins. Net profit was reduced by the relatively strong growth of 8% in the administration costs of the banks, and to a lesser extent by an increase in the provisions made to cover loan losses. Net profit was unchanged as a share of assets at 1.4%.
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