Banks, Economics, Estonia, Financial Services, Loan

The loan and leasing portfolio grew by 1.6% in 2012. The growth was unevenly divided between the months and the fluctuations were caused by a combination of the financing of very large one-off projects and the writing off from banks' balance sheets of loans that had been assessed as uncollectible. The total volume of loans and leasing given to Estonian companies and households fell in December by 16 million euros to stand at 14.7 billion euros at the end of the year.

Companies took 22% more in loans last year than they did in 2011. The turnover of long-term corporate loans issued in December was 270 million euros, which was higher than in any month in the preceding two years. The main impacts on loan turnover came from large single loans made to the transport, real estate and infrastructure sectors, some of which were used for refinancing.

Last year, 16% more housing loans were given out than in the previous year. This led to a slight increase in the housing loan portfolio in the second half of the year. However, the decline in other loans at the same time was larger than this increase, which meant that total household loans and leasing fell by around 2% over the year.

The average interest rate for housing loans rose slightly in December to 2.6%, while the average rate for long-term loans to companies climbed to 3.4%. In 2012 as a whole however, the interest rates for new loans fell significantly due to falls in the Euribor rate. At the same time, banks raised interest margins, with the average margin on a housing loan rising by 0.5 points to 2.25%.

The decrease in problem loans continued at a fast pace. The percentage of loans overdue by more than 60 days fell to 3.2% of the loan portfolio. Although a large part of the drop in overdue loans was due to uncollectible loans being written off from the balance sheet, loan quality has also improved faster than expected because key interest rates have been low and Estonia’s economic growth has ensured the income flows needed for debt servicing.

The growth in deposits remained strong during the last months of 2012. Over the year, the total savings of Estonian companies and households grew by around 9%, reaching 8.7 billion euros by the end of the year. A further 140 million euros were added to deposits in December.

A reduction in the write-downs of earlier loans allowed banks operating in Estonia to earn more than 350 million euros in net profit in 2012. If the exceptional income in 2011 from the sale of subsidiary companies is left aside, the net profit of the banking sector rose by 8% over the year. The growth in profit was faster than expected, because loan loss provisions were reduced, and this gave around 15% of the net profit of the banking sector for the year. Profitability was also aided by a fall of 3% in the administrative costs of the banks.

Net interest income, the main source of income for banks, was more than 10% smaller in the fourth quarter than a year earlier. The drop is mainly a consequence of the remarkably low level of key interest rates and the modest growth in the loan portfolio thus far.