Estonian households' borrowings grow 7 pct on year

TALLINN – The loan liabilities of Estonian households in the third quarter of 2017 were bigger by 7 percent than at the same time the year before, the central bank said on Monday.

Household deposits meanwhile grew 9 percent over the year, Taavi Raudsaar, economist at the Bank of Estonia said.

"As demand for credit is strong, the loan liabilities of households have grown a lot. Demand for loans is supported by rapid growth in incomes, high levels of confidence and very low interest rates. The loan liabilities of households increased in the third quarter at about the same rate as wages, at around 7 percent over the year," Raudsaar said.

The stock of bank loans and leases has been growing faster in recent quarters, whereas the increase in loans from other lenders, including instant loan providers, has slowed from the previous rapid rates. This probably is partly a result of banks having started to issue more consumption loans and leases, and also of more effective supervision introduced over the operations of other lenders.

Higher incomes have increased the ability of Estonian residents to save money, and savings continue to grow at a rapid rate. Household deposits increased by 9 percent over the year, while other household financial assets like cash, securities, investment fund units and loans issued grew even faster. Despite the rapid growth, the financial savings of Estonian households in relation to incomes are still below the European Union average, and many households would not have sufficient savings for unexpected events, the economist said.

Although investment in fixed assets increased strongly in 2017, companies in Estonia were able to use their high levels of liquid assets and own funds for most of the financing. More money was taken out in long-term loans than before, and the annual rate of growth was a little over 5 percent in the third quarter of last year.

At the same time the stock of short-term loans shrank sharply, largely reflecting the cash flow management of some foreign-owned companies. Total corporate debt liabilities were up by 1 percent on the previous year. The stock of loans taken from banks operating in Estonia declined in the third quarter of last year and the stock of loans taken from other countries increased by the same amount, as one bank moved a part of its loans into the portfolio of its foreign parent.

Foreign investment in equity in Estonia increased, but this largely reflects the increase in reinvested income resulting from bigger profits rather than increased amounts of foreign investment, Raudsaar said.

The Estonian economy was a net lender to the rest of the world in the third quarter of 2017, as residents of Estonia invested more financial assets abroad than they received from there. This shows that the trend of recent years for Estonian residents to save is continuing and the level of investment in fixed assets is still relatively low despite the growth registered in the past couple of quarters.