Corporate lending surges

TALLINN - Estonian housing loan interest rates reached the lowest level for the past decade in April, Eesti Pank said in a fresh analysis, reports LETA.
In April, corporate lending activity was the highest for the past three years. New corporate loans and leasing amounted to 663 million euros, which is about 40 percent more than in April 2011. The high growth in loan turnover was the result of a larger increase in long-term loans. More than a third of long-term loans were issued to the real estate sector. Though some single large-scale loan projects made up a big part of April transactions, credit growth has become more broad-based compared to earlier periods.

Housing loans increased 17 percent, year-on-year, in April. Household borrowing capacity has improved due to increased income and low interest rates. However, they tend to remain relatively cautious in taking on larger financial commitments, so credit growth has remained moderate, considering the low base level.
The loan and leasing portfolio of banks increased by 8 million euros in April, amounting to 14.4 billion euros by the end of the month. The loan and leasing volume was 2.4 percent smaller than in April 2011. If the trend of somewhat more active borrowing continues, the loan portfolio shrinkage, which has lasted for more than three years, may be expected to end this year.

The interest rate on housing loans declined to 3.1 percent due to a fall in EURIBOR. The small increase in margins in Estonia was the result of reviving tensions in the external environment at the end of 2011. Nevertheless, the average interest rate on housing loans decreased by 40 basis points (0.4 percent) during the first four months of this year. The six-month EURIBOR, at the same time, declined by more than 60 basis points. The average interest rate on long-term corporate credit was 3.8 percent in April.

The share of loans overdue by more than 60 days in the loan portfolio declined in April after a three-month standstill, reaching 4.6 percent. The loan quality has improved owing to the relatively favorable external environment, but writing off uncollectible loans has also played a role here.
Annual deposit growth accelerated to 9 percent. The total volume of corporate and household deposits in Estonia rose by 296 million euros in April. The majority of the increase was caused by corporate deposit growth. By end-April, deposit volume was 8.3 billion euros.