OREANDA-NEWS. November 05, 2014. Bank lending to Estonian companies and households was 2.9% larger in September than a year earlier. The portfolio increased by 42 million euros during the month, more than half coming from increases in the loan volumes of households.

Annual growth in loans to companies slowed to 3.8% in July. Companies took markedly less in long-term loans in September than the average in the earlier months of the year. There was a particular decline in lending to real estate companies, which had earlier been the main contributors to loan growth. However, companies took more in short-term loans in September than in the past six years.

The annual growth in the housing loan portfolio accelerated to 2.4%. Growth in new housing loans continued at a moderate speed in September. During the month households took out 15% more in housing loans than a year earlier. As the number of loan transactions grew by a much smaller 6% at the same time, this means that the average size of housing loans has increased.

The reduction in EURIBOR brought down the interest rate on housing loans further. The average interest rate for housing loans issued in September fell to a record low of 2.4%. Low base interest rates mean that the rates on loans have been favourable for borrowers for more than two years now. The interest margins have not changed by much during the same time. The average interest rate on long-term corporate loans rose in September to 3.4%, which is slightly higher than the average for the past two years. The average interest rate on loans given to companies has been much more variable and is dependent more on the nature and riskiness of individual projects.

The share of loans overdue for more than 60 days accounted for 1.9% of the loan portfolio in September. The volume of overdue loans has remained relatively unchanged since the end of last year. Although the stock of earlier overdue loans has continued declining, new problems with repayments of loans are starting to appear at the same time.

Deposits continue to grow rapidly. Household deposits increased by 35 million euros during the month. Corporate deposits declined slightly after two months of strong growth. The total deposits of companies and households stood at 9.6 billion euros at the end of September, up 8.4% from a year ago.

Banks earned 80 million euros in net profit in the third quarter. Net profit was 7% smaller than a year earlier, mainly because of fairly modest financial income. Net interest income increased over the year by around 11%. This is partly due to increased loan volumes and a gradual increase in the share of loans with higher interest margins. Partly it is due to the increase in demand deposits reducing the income expenses of the banks. The banks have again reduced their provisions for loan losses, which has supported profitability for four years now.