The share of bad loans decreased for a second month in a row
Jaak Tõrs, Head of the Financial Stability Department of Eesti Pank
Household borrowing activity showed no notable pickup signs in October. The volume of new housing loans declined, amounting to 541 million kroons, which is nearly 9% less than a year ago. At the same time, as a result of an increase in 6-month EURIBOR, the interest margin on new housing loans went down to 2.1% in October. The turnover of other household loans was a tenth smaller year-on-year. Leasing turnover was 50% higher year-on-year, reflecting a rise in the acquisition of vehicles by households.
Corporate loan and leasing stock amounted to 2.35 billion kroons, having decreased on September, but exceeding that of October 2009 by 17%. Over half a billion kroons went to the industrial and real estate sectors, whereas trade received about 400 million kroons. Compared to the previous month, the interest margin on long-term corporate loans increased to 3.1%.
Due to continuously subdued borrowing activity and depreciation of loans, the loan and leasing portfolio stock decreased by 1.6 billion kroons in October. At end-October, the stock was 6.6% smaller year-on-year, declining to the level recorded three years ago: 238 billion kroons.
The share of loans overdue by more than 60 days shrank by 182 million kroons in October, declining for a second consecutive month. Both corporate and household bad loans diminished relatively equally. Nevertheless, due to a shrinkage in banks' loan portfolio, the share of overdue loans remained at the level of 7.0%. With the share of bad loans decreasing, banks continued to lower their provisions. In October, provisions were reduced by 193 million kroons. However, 78% of loans overdue by more than 60 days were still covered by write-downs at the end of the month.
Modest credit demand is also reflected by ongoing deposit growth. Irrespective of low interest rates, deposits hiked by approximately 1.2 billion kroons on September, mostly as a result of growing corporate deposits. Household deposits increased by 61 million kroons.
Figure 1. Monthly change and annual growth of household and corporate loans and leases
Figure 2. Share of loans overdue by more than 60 days in the portfolio
Figure 3. Volume of corporate and household deposits and the annual deposit growth rate
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