The quality of the loan portfolio of the banks was very good before the uncertainty caused by the coronavirus
Economist at Eesti Pank
Eesti Pank today publishes the banking statistics for February, which show how banking and the credit market were functioning before the economy was affected by the spread of the coronavirus. The economic restrictions that have been put in place are causing uncertainty for companies and people, and so the need for banking services will be different to normal in the coming months.
The data indicate that because the economy has been doing well for a long time, neither companies nor individuals had problems with making repayments on their loans in February. Only 0.8% of the corporate loan portfolio and 0.3% of the housing loan portfolio were overdue by more than 60 days. This means that the loan portfolios of the banks were of very good quality as they entered the uncertainty caused by the coronavirus.
Increased savings will help in getting through the uncertain times. The deposits of both companies and households have grown rapidly in recent years, with corporate deposits up 7% over the year and household deposits up 9%. Of course not everybody has sufficient financial buffers, as deposits and other financial savings are unevenly distributed between companies and households.
The earlier strong position of households, with low unemployment and strong confidence, was illustrated by activity levels in the loan market. The amount issued in housing loans in recent months was more than a tenth more than a year earlier. Demand has also remained high for other loans and leases. The stock of housing loans issued by the banks stood at 8.1 billion euros in February, and the stock of other loans and leases stood at 2 billion euros.
Borrowing by companies has been sluggish of late. Long-term loans and leases worth 150 million euros were granted to companies in February. The amount lent to the industrial sector at the start of this year stands out particularly for being small. As the outlook for the global economy has been showing warning signs since autumn last year, the low level of interest in borrowing may indicate that companies are uncertain about making investments. The stock of corporate loans stands at 9.3 billion euros.
The average interest rate on long-term loans issued to companies in Estonia in February was 3%. The average interest rate on housing loans with collateral was 2.3%, while the total average interest rate on housing loans was 2.5%.
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