The use of debt capital for financing by companies has increased somewhat
Financial Sector Policy Division of Eesti Pank
Corporate debt was 11% larger at the end of the third quarter of 2014 than it was a year earlier. This was partly because general borrowing activity by companies has increased and partly because of the impact of the reclassification of companies between institutional sectors at the end of 2013, without which the increase would have been a little below 8%. The third quarter also saw more transactions where an Estonian company took a loan from a foreign parent company and lent that amount onwards to a foreign subsidiary than was earlier the case. Such transactions have no effect on the net debt of the Estonian corporate sector, but they increased its gross debt by around 2%.
Corporate equity grew more slowly in response to lower profits. The rapid fall of recent years in the ratio of debt to equity, which shows corporate financial leverage, was replaced in 2014 by a small rise as a result. Corporate debt has also started to increase slightly as a ratio to GDP, reaching some 93% by the end of the third quarter. Profits and economic growth have helped financial leverage and debt shrink much more in recent years in Estonia than in other European Union countries, though both figures are above the European averages.
Household debt was at 227 million euros, or 3%, larger at the end of the third quarter of 2014 than it was a year earlier. The increase came mainly from growth in long-term housing loans, but there was also an increase of 27 million euros in short-term loan liabilities for less than one year. The continuing growth in deposits meant that household savings grew faster than debt did. Household deposits stood at around 5.5 billion euros in the third quarter of 2014, which was 422 million euros, or 8%, more than a year earlier.
The Estonian economy as a whole was a net lender in the third quarter. Although companies and households borrowed more actively than before, more funds were invested abroad or returned there than were taken in from abroad.
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