OREANDA-NEWS. June 25, 2009. Jana Kask, Head of the Financial Sector Policy Division of Eesti Pank.

In May, the corporate and household loan and leasing stock declined by 518 million kroons, i.e., 0.2% on April and 0.7% year-on-year. Compared to earlier months of this year, the loan volume contracted considerably less. This was supported by the financing of single new large projects, especially in the field of water supply and transport. But the loan and leasing portfolio of manufacturing, business services, and trading sector enterprises continued to shrink at its previous rate. New housing loans worth 560 million kroons were issued in May. This is comparable to previous months' loan turnovers, but 70% smaller than the 2008 indicator. In line with the contraction in the nominal GDP, lending activity can be expected to be more modest also in the next months.

The growth rate of overdue loans subdued somewhat in May. The share of loans overdue by more than 60 days in the loan portfolio rose from 5.2% in April to 5.5% by the end of May. The accumulation of new problem loans was also more moderate compared to earlier months. However, the number of households and enterprises facing temporary or permanent difficulties with repaying loans is increasing in light of more adverse economic conditions. The base scenario of Eesti Pank's spring forecast expects the share of loans overdue by more than 60 days in the loan portfolio to amount to 9% by end-2009 and losses on loans to nearly 4% of the total loan volume.

The capitalisation of banks is sufficient to cope with increasing loan losses. By the end of May the banking sector's average capital adequacy ratio was 22.3%, exceeding the 10% minimum requirement by sufficient buffers.

Deposits have increased by nearly a per cent over the first five months of the year, but the volume of deposits was still 0.3% smaller year-on-year. Corporate deposits expanded by more than 600 million kroons, whereas household deposits diminished by about 100 million kroons.

Loan interest rates did not change notably in May, since the level of key interest rates has stabilised. In May, the average interest rates on housing loans and long-term corporate loans were 4.8% and 4%, respectively.

The financial sector statistics and publication calendar are available on the web site of Eesti Pank at www.bankofestonia.info/pub/en/dokumendid/statistika/pangandusstatistika/tabelid/.