Rebounding confidence in the summer has led companies to borrow more actively in the autumn
Economist at Eesti Pank
The uncertainty that was caused by the coronavirus crisis caused many companies to put new investment on pause in the spring, reducing the need for new long-term loans. The general fall in economic activity at the same time also reduced the need for short-term working capital loans. Like in earlier crises, the take-up of new long-term loans fell by more when the crisis started in the second quarter than that of short-term loans did, and it was 48% below where it was a year earlier. The volume of short-term loans issued in the second quarter was 20% smaller than it was the same quarter of the previous year.
Confidence rebounded somewhat in the summer though and the recovery in new long-term loans issued to companies was faster than that in short-term loans. New long-term borrowing was 19% more in October than it was a year earlier, while 18% less was taken in new short-term loans.
The changes in new borrowing from banks by companies varied across sectors. There are several possible reasons for this, as operating volumes declined by different amounts in different sectors, sectors entered the crisis starting from different financial positions, and there were some differences in how support measures were issued to sectors during the crisis.
The accommodation and food service sector, which was hit hardest by the crisis, has continued to take the same amount in long-term loans as previously, which could indicate that accommodation providers see the drop in the economy as providing an opportunity to invest and refurbish. Long-term borrowing has also remained strong in the infrastructure sector, probably partly for seasonal reasons and largely because investment by the state has continued. Infrastructure companies took 13% more in long-term loans in the seven months from April onwards than they did in the same period last year. The primary sector, which covers agriculture, forestry, and hunting and fishing, has borrowed the same amount as before in both long and short-term loans. This may be because of the seasonal nature of the sector, as new machinery is needed in summer and autumn for agricultural work. The growth in new loans to the primary sector was held back though by a decline in new leases for forestry reprocessing machinery.
The industrial sector, where economic activity was already in decline at the end of last year, took 43% less in long-term loans in the past seven months than in the same period last year. The reduction in aggregate new long-term borrowing in the early stages of the crisis was driven largely by the real estate and construction sector, but in recent months new borrowing by this sector has been close to or even above its average of earlier years. The logistics sector has cut both its long-term and short-term borrowing by almost half in the past seven months as a whole, partly because of the severe blow dealt by the crisis but also possibly because of the planned regulation by the European Union of the road transport sector.
Please note: Eesti Pank published the statistics for credit institutions and lease companies for October on its website today. The statistical release describes the main changes in the statistics on credit institutions and leasing companies, covering the volume and structure of assets, loans and leases issued, deposits, and interest rates on loans and leases. The release is independent of economic policy releases and is presented separately from them.
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