The war has so far had a modest impact on the lending market in Estonia

Autori Taavi Raudsaar pilt

Taavi Raudsaar

Economist at Eesti Pank



Russia’s invasion of Ukraine caused Estonian companies and households to be somewhat more cautious in their borrowing, especially in the first weeks of the war. After that, demand for credit has largely recovered. Although some banks have become more wary in their lending, access to loans remains good and growth in credit is quite fast.

The annual growth in the housing loan portfolio accelerated to 10% in March. Some 15% more new housing loans were issued in March than a year previously. The growth came partly from the completion of loan contracts that had been signed earlier though, and the volume of newly signed loan agreements was slightly smaller than in March last year. Demand for housing loans dropped for a time at the end of February and the start of March as purchase decisions were postponed after the war started, but it has since recovered. There were 8% more new car leases issued in March, and the growth would probably have been even faster if there were not such difficulties in getting hold of new cars.

Borrowing by companies continued to grow at close to its fastest level of recent years at over 7%. The war has made companies more cautious about long-term investment and making borrowing decisions. Several semi-completed projects have continued to advance, but some projects in the planning phase have been put on hold. The current slowdown in investment and borrowing has however been markedly less sharp than the one that followed the outbreak of the Covid-19 pandemic. Fear of inflation has pushed many companies to increase their inventories, causing an increased need for operating capital, and demand increased substantially in March for short-term loans and for factoring. Overall credit growth is driven by companies in real estate and agriculture, but retail companies stand out particularly for their borrowing to increase inventories.

The capacity of the banks to lend and access to bank loans remain good. The Bank Lending Survey in March found banks tightening their lending standards a little for corporate loans and housing loans to households from what they were at the end of 2021. The survey by the Estonian Institute of Economic Research on the lending environment found that companies considered the banks a little more reluctant to lend in March than they were before the war in Ukraine. The estimates are still good compared to the average of recent years, and this has been helped by increased competition in the lending market. The confidence of the banks to lend has been supported in recent months by the knowledge that the quality of loans has remained good despite difficult circumstances, as the number of applicants for payment holidays is low, as is the level of overdue loans.



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Ingrid Schmuul
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Eesti Pank
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