The profitability of the banking sector declined last year
Economist at Eesti Pank
- The loan and lease portfolio of Estonian companies and households grew quickly in 2016 and increased by 7%
- The deposits of companies and households in banks grew by a rapid 9%
- The profitability of the banking sector declined as service fee income was down and provisions were increased
The portfolio of loans and leases taken by Estonian non-financial companies and households from banks operating in Estonia continued its rapid growth in December 2016. The loan and lease portfolio grew by 1.1 billion euros over the year, or 6.8%, and stood at 17.1 billion at the end of the year.
The total volume of loans and leases to non-financial companies grew by 7.8% in 2016. The portfolio grew for almost all sectors with the biggest growth coming in the volume of loans and leases to real estate and construction companies, which accounted for almost half of all the increase in the corporate portfolio. Growth in corporate loans was supported above all by new long-term loans, as 14% more was issued in such loans than a year earlier.
The loan and lease portfolio of households grew at an increasing rate in 2016. The housing loan portfolio grew by 5.2% over the year and there were 10% more new housing loans issued than a year earlier. There was also strong growth in car leases, which were up 16% at the end of the year on the end of 2015. The portfolio of credit card loans and overdrafts started to increase in the second half of the year.
The average interest rates on new loans did not change substantially in 2016. The average rate for long-term corporate loans issued in December was 2.2%, which was a little lower than at the end of 2015. The average rate on new housing loans was also 2.2%, or about the same as a year earlier.
The quality of the loan portfolio remained good. The value of loans overdue by more than 60 days at the end of December was a little lower than a year previously at 172 million euros or 1.1% of the loan portfolio. Provisions increased slightly in size however, so the ratio of provisions to long-term overdue loans was at 90% at the end of the year.
Bank deposits grew strongly in 2016. The deposits of Estonian companies and households grew by 8.6% over the year to 11.9 million euros, with corporate deposits increasing by 9.5% over the year and household deposits by 7.8%. Non-resident deposits shrank at the same time by around 500 million euros to 1.9 billion euros.
The profitability of the banking sector declined last year. Net profit earned was 357 million euros, but without the volatile dividend income earned from subsidiaries, the ratio of net profits to total assets was 1.3%, which is a little lower than in 2015. Net interest income as a ratio to total assets was the same as in 2015. This was supported by a fall in interest expenses, growth in the loan portfolio and a rise in the average interest margin earned from the loan portfolio. The ratio of service fee income earned to total assets was lower in 2015 though, and more provisions were made than the year before.
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