Profitability remains good in the banking sector

Mari Tamm
Mari Tamm
Economist at Eesti Pank
  • The total volume of housing loans increased by 4.2% over the year
  • The average interest rate for new long-term loans issued to companies was down slightly in 2015, while the rate for housing loans stayed the same
  • The profitability of the banking sector was supported in 2015 by increased dividend income and service fee income

The loan and lease portfolio of Estonian companies and households grew by 4.9% over the year during 2015. The loan portfolio increased by 747 million euros during the year to 16 billion euros.

The growth in the corporate loan and lease portfolio picked up in the last month of the year to 5.3%. The faster loan growth in the months before December was partly caused by the comparison base effect, as the core activities of clients were reviewed and clarified in the statistics at the end of last year. In December, the impact from the high base level disappeared. Even so, the volume of new long-term loans issued to companies in December was one of the largest of the year at 333 million euros. The fastest growth was in the portfolio of loans to companies in trade, manufacturing and energy.

The portfolio of loans and leases to households increased in 2015 because the volume of housing loans and car leases grew faster than previously. December was one of the most active months last year for housing transactions and 89 million euros of new housing loans were issued. The total volume of housing loans increased by 4.2% over the year. Other loans to households increased because of car leases, which were up 16% in volume over the year, while the volumes of overdrafts, credit card borrowing and student loans all fell in 2015.

The average interest rate for new long-term loans issued to companies was down slightly in 2015, while the rate for housing loans stayed the same. The six-month EURIBOR, which serves as the base interest rate for most loans, dropped notably in 2015. At the same time the average interest margin on housing loans rose, so the average interest rate remained the same at 2.2% through to the end of the year. Increased competition between banks in the corporate loan market pushed the average interest rate on long-term corporate loans down however.

The share of loans overdue by more than 60 days in the loan portfolio fell during the year from 1.7% to 1.2%. The volume of loans that were long-term overdue declined in December too. The improved quality of the loan portfolio let the banks reduce their provisions for loan losses to 1% of the loan portfolio at the end of the year.

The deposits of Estonian companies and households grew by a rapid 11% over the year. Total deposits increased by 1.1 billion euros during the year to 10.9 billion euros, with corporate deposits increasing by 16% and household deposits by 7%.

The profitability of the banking sector was supported in 2015 by increased dividend income and service fee income. The banking sector earned 608 million euros in net profit, more than half of which came from dividends from subsidiaries. Without dividend income, net profit would have been 11% less than a year before. Four million euros less was earned in net interest income in 2015 than in the previous year because of the fall in base interest rates. This was offset by net fee and commission income though, which brought in 9 million euros more than in the preceding year. Without dividend income, the return on assets of the banking sector decreased to 1.2%, which still remains one of the highest in the European Union.