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Estonian Central Bank: Overdue Loans Did Not Increase in February

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The volume of banks' loan and leasing portfolio declined 0.4%, i.e., 1.1 billion kroons in February. The decrease was relatively moderate considering the current economic situation.

The total portfolio volume in February was 266 billion kroons. The contraction in the volume of the loan and leasing portfolio was rather uniform across both enterprises and households. The current corporate credit need is mostly affected by more modest economic activity. Households' loan behaviour is influenced by future uncertainties, which means people prefer saving to consumption. This is well reflected in the February change in consumer credit volume, which dropped by 443 million kroons (including the 103-million-kroon decrease in car lease), i.e., 1.5%.

The volume of household deposits increased in February, whereas the volume of corporate deposits decreased. The annual growth of household and corporate deposits was 0.5% in February with the total volume of deposits amounting to 104.8 billion kroons. The volume of household deposits grew by 942 million kroons, i.e., 1.7%. The volume of corporate deposits fell by 497 million kroons, i.e., 1%.

The share of loans overdue by more than 60 days in the loan portfolio increased by 0.5 pp in February, amounting to 4.1% of the banks' loan portfolio at the end of the month. The share of household overdue loans did not expand in February, but the existing overdue loans remained in default. As regards enterprises, the volume and share of loans overdue by more than 60 days increased the most in the construction and real estate sector. All in all, loans overdue by more than 60 days accounted for 4.7% of the corporate loan portfolio.

Since the loan portfolio shrank, the average capital adequacy ratio of banks went from 19.5% in January to 19.8% in February. Banks have accumulated sufficient capital buffers in recent years to cope at a time when loan losses may considerably expand.

The decrease in international money market interest rates keeps easing the debt burden of earlier borrowers. Since key interest rates fell, the average interest rate on new mortgage loans and long-term corporate credit issued in February sank to 4.6% and 4.8%, respectively. The risk margins of banks are higher than a year ago, but stabilised in February. This shows the credit market situation has become slightly clearer.

Figure 1. The annual growth of household and corporate loans and leases in Estonia

Figure 2. The volume of corporate and household deposits in Estonia and the annual deposit growth rate

Figure 3. The weighted average interest rate on housing loans and long-term corporate loans issued within a month and the 6-month EURIBOR