Payment holidays have slowed the pile-up of overdue loans

Raido Kraavik
Raido Kraavik
Economist at Eesti Pank

Restrictions introduced because of the coronavirus mean a broad economic downturn is expected this year, and so many companies and households will face difficulties in repaying their loans. To avoid payments becoming overdue, the banks have currently accepted applications for payment holidays for around a tenth of the total value of their loan portfolio. This has helped prevent growth in overdue loans. The share of loans overdue more than 30 days remains very small at only 0.8% or 138 million euros, but the weakness in the economic climate suggests that difficulties will deepen.

Despite the difficulties in the economy, yearly growth in deposits increased in April to 11.5% for households giving 8.6 billion euros, and 9.5% for companies giving 7.2 billion euros. This is partly because the coronavirus crisis has increased caution and restricted opportunities for spending on consumption and for making investment decisions. It is also because the measures taken by the government have helped prevent a very large drop in household incomes. This has allowed them to build up financial buffers that allow them to cope better with possible difficulties that may arise.

Housing loans of 89 million euros were issued in April, which was a quarter less than last April. The emergency situation affects a part of the housing loan market with a lag, because some decisions, on loans for buying newly-developed property for example, may have been taken before the emergency was declared. The market for car leases is affected more immediately, and 66% less was issued in car leases to households in April than a year earlier. Households took a third less in other loans and leases.

New long-term loans and leases worth 152 million euros were issued to companies in April, which is a third less than usual. Notably less was issued in loans to companies in real estate, construction and manufacturing. The wide-ranging restrictions on economic activity have depressed corporate confidence. As there is still a lot of uncertainty about the further spread of the coronavirus and the economic impact, some planned investments have been postponed until the outlook for the economy improves.

The average interest rate on housing loans with collateral issued in April was 2.1% and the average interest rate on long-term corporate loans was 2.8%. The banks are being cautious about selecting new loan clients during the emergency situation, and loans have been issued to households and companies with strong finances. This means the fall in the average interest rate does not necessarily reflect a reduction in the interest margins of the banks.

 

Financial sector statistics and their publication schedule

See also the recent review by the central bank of the risks to the financial sector.

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Hanna Jürgenson
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