OREANDA-NEWS. January 26, 2011. In December 2010, the corporate and household loan and leasing stock decreased by 126 million euro (by 0.8%), reaching 15.1 billion euro, reported the press-centre of Bank of Estonia.

Year-on-year, the stock of the loan and leasing portfolio decreased by about a billion euro, i.e 6.3%. Nearly 70% of the last year's shrinkage in the loan stock derived from the corporate sector, where, in turn, construction and real estate companies accounted for the largest share. In households' portfolio, there occurred a notable contraction in shorter-term loans, such as consumer credit and car lease. The stock of housing loans was more than 2% smaller, year-on-year, at end-2010.

The loan and leasing portfolio of Estonia's businesses and households has decreased by 13% since autumn 2008. The indebtedness of the economy is likely to continue shrinking in the coming months. According to Eesti Pank's forecast, credit growth will be subdued this year (below 1%).

Banks did not change their credit conditions in December. The average interest rate on housing loans issued was 3.2%, just like in previous months. The average interest rate on long-term corporate loans, which was very volatile over the past year due to the scarcity of transactions, was 4.3% in December. That is slightly higher than the annual average.

The share of loans overdue by more than 60 days decreased by 0.5 pp to 6.3% in December. The notable shrinkage was partly due to increased write-offs at the end of the year. Since the economy is recovering, the solvency of borrowers has improved a lot, and this is also proved by the fact that the number of new problem loans has been notably smaller over the past months.

For the first time in years, the stock of new provisions was smaller in the fourth quarter than the stock of loans considered to be performing again. Last year, the total of loan losses (including provisions) amounted to 149 million euro, i.e 1% of the loan portfolio in net terms.

Banks operating in Estonia earned a net profit of 23.4 million euro in the fourth quarter. This was half less than in the previous quarter. Profitability was reduced by write-downs on investment in subsidiaries, which were nevertheless many times smaller than a year ago. Profitability before write-downs was supported by an increase in net interest income.

Deposit growth remained rapid irrespective of low interest rates. In December, the volume of household and corporate deposits increased by 107 million euro, i.e., by 1.5%, amounting to 7.5 billion euro. Year-on-year deposit growth was 573 million euro (8.3%). Due to low interest rates, the share of household time deposits has shrank by about 10 pp to 51%, year-on-year. Investment deposits grew by nearly 9 million euro in December. This shows depositors are becoming more interested in larger returns on their investments.