Banks optimistic on lending

TALLINN - The number of new loans and leasing issued to Estonian companies grew by 16 percent in April year-on-year, on top of a 34 percent increase in March, in a sign of continuing improvement in the economy, announced Estonia’s central bank, Eesti Pank, reports news agency LETA. As in the previous months, borrowing in April was driven by the increased demand by companies for short-term financing. Long-term lending by banks, however, decreased year-on-year because of the moderate borrowing by the real estate sector. Lending to the agricultural sector remained strong, with the amount of long-term loans growing by almost 90 percent from a year ago.

The amount of new housing loans issued in April increased by 16 percent year-on-year. The housing market has picked up somewhat in the spring, but the loan turnover for 2011 is still lower than expected. The improved confidence of households and the favorable loan terms offered by banks, on the other hand, point to a possible rise in borrowing in the coming months. The most active segment of the household loan market is car leasing, with the transaction volume in April growing 83 percent from a year earlier.

The loan and leasing portfolio of banks keeps shrinking, as the level of new loans is smaller than the repayments of loans issued earlier. In total, 14.7 billion euros of loans and leasing were issued to Estonian companies and households in April, which is 6.4 percent less than a year ago.

The average interest margin for housing loans issued in April dropped to 1.7 percent. The average interest rate for housing loans remained at 3.3 percent, the average level for previous months, regardless of the rise in the Euribor. Given the low level of loan turnover, the average interest rate for long-term corporate loans has not followed any particular trend in recent months. In April, it stood at 5.2 percent, which is higher than the average for the past few years.
The loan quality deteriorated slightly in April, as the share of loans overdue for more than 60 days in the loan portfolio rose by 0.2 percentage points, to 6.4 percent, by the end of the month. New loan repayment problems emerged in the loan portfolio of companies, in particular real estate companies.

Regardless of some potential temporary setbacks, the loan repayment ability of companies and households is improving steadily. Eesti Pank expects the level of loans overdue for more than 60 days to drop below 5 percent of the total loan portfolio at the end of 2011.

Annual growth in deposits picked up, to 5.5 percent in April. The total level of deposits of Estonian companies and households increased by 142 million euros, to 7.6 billion euros, in April. Corporate deposits contributed 85 percent to month-on-month growth.