Debt Burden of Estonian Enterprises and Households Decreased
OREANDA-NEWS. April 28, 2009. Jana Kask, Head of the Financial Sector Policy Division of Eesti Pank.
In March, the corporate and household loan and leasing stock declined by 1.7 billion kroons, i.e., 0.6%. A majority of the decline in the loan and leasing portfolio derived from more modest borrowing activity of enterprises. The argest drop in borrowing volume concerned commercial enterprises.
The volume of loans granted to the industrial sector increased by 120 million kroons in March. The more cautious financial behaviour of households has mostly affected the demand for consumer credit, the stock of which decreased more than a billion kroon compared to end-2008. Due to the low activity in the real estate market, the volume of housing loans dropped for the fourth month in a row.
The domestic indebtedness of corporate and household sectors fell one percentage point compared to end-2008 and amounted to around 107% of GDP in the first quarter. Since the contraction in the economy is expected to continue both this and next year, credit volume is also going to decline. According to Eesti Pank's spring forecast, the banks' aggregate loan and leasing portfolio will decrease by 7.5% in 2009.
The volume of the deposits of Estonian households and non-financial enterprises increased by 1.4 million kroons, i.e., 1.3% in March. The relatively strong growth was caused by the increase in corporate deposits, which offset the slight decrease in household deposits. By end-March, annual deposit growth increased to 2.4%.
The share of loans overdue by more than 60 days increased from the level of 4.1% of the loan portfolio in February to 4.5% by the end of March. However, the total volume of overdue loans, which includes also shorter-term payment defaults, declined in March as regards both households and enterprises. Construction and real estate sector enterprises struggle the most with loan servicing - nearly 8% of the respective portfolio may be considered problematic. In respect of housing loans, the share of loans overdue by more than 60 days is markedly smaller, amounting to approximately 3% of the portfolio.
The banks' average capital adequacy rose to 22% in March, mostly due to the decline in the loan portfolio, whereas the lowest indicator of the market (16%) was still well above the mandatory 10% ratio. The high capitalisation of banks enables them to cope in the case of possible higher loan losses. In the first quarter the banks operating in Estonia suffered losses in the amount of 444 million kroons. The banks' quarterly results were mainly affected by write-downs of loans in the amount of 1.5 billion kroons (0.6% of the loan portfolio).
Declining Euribor contributed to the decrease of the average interest rate on housing loans. The average interest rate on new housing loans dropped from 4.6% recorded in February to 4.2% in March. The average interest rate on new long-term corporate loans, on the other hand, did not decline and stayed at the level of 4.8%. Owing to the falling interest rates in the international money market, the monthly loan repayments of earlier borrowers have significantly decreased.
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