Smaller demand for car leases showed the loan market is cooling
Economist at Eesti Pank
The sharp deterioration in the economic environment caused by the emergency situation has affected the market for car leases very fast. Reduced demand for car leases was one of the first signs of the loan market cooling. Momentum meant that the rest of the financing market was still active in the second half of March, though statistics for April and subsequent months will probably show a fall in the issuing of other loan and lease products.
Companies and households leased around one quarter fewer cars in March than a year earlier. As the restrictions on economic activity were only introduced in the middle of March, it may be estimated that demand for car leases has by now fallen even further.
Long-term loans and leases worth 218 million euros were granted to companies in March. This is close to the average monthly amount borrowed by companies throughout the past year. The total corporate loan stock is 9.4 billion euros. The 116 million euros issued in housing loans was a little more than in the same month of last year. The stock of housing loans issued by the banks to households stood at 8.2 billion euros, and the stock of other loans and leases stood at 2 billion euros.
The average interest rate on loans issued in March was lower than in the preceding months. The average rate on long-term corporate loans was 2.6%, and on mortgages it was 2.3%.
Having grown rapidly for a long time the volume of deposits may increase further in the coming months as both companies and households use their savings cautiously. Domestic deposits from the non-financial sector increased by 9% over the year, with corporate deposits reaching 7.1 billion euros and household deposits 8.4 billion.
The capacity of companies and households to service their debts may deteriorate markedly. The volume of overdue loans to companies in some sectors of the economy increased by the end of March, though there has not yet been any substantial change in the payment behaviour of households. The share of loans to companies in the loan portfolio that were at least ten days overdue rose from 1.3% in February to 2.1% in March. It increased particularly for companies in real estate and accommodation and catering. The banks have offered payment holidays to borrowers, which will limit the accumulation of overdue loans in the short term. This means that overdue loans may not give a full picture of the difficulties that there may be in servicing loans.
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