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International Internet Magazine. Baltic States news & analytics Saturday, 30.05.2020, 11:38

Borrowing has become more expensive

Raido Kraavik Economist at Eesti Pank, 23.10.2019.Print version
Borrowing has become a little more expensive for companies and for house buyers. The average interest rate on corporate loans was 3.5% in September, which is the highest of recent years. The average interest rate on housing loans was 2.6%.

The stock of corporate bank loans and leases has remained at 9.5 billion euros for the past half year and it is 4.6% larger than a year ago. The loan stock has largely grown because of individual large loans to the energy sector. Significantly more long-term loans were issued in September to the manufacturing sector than usual, even though the outlook for growth in the sector has become relatively pessimistic in recent months.

Slower growth in the economy and higher interest rates on housing loans have not reduced the demand from households for loans. This can be explained by the continuing fast growth in wages and the consequent high levels of confidence. The stock of housing loans is 7.9 bn euros, and the yearly growth in it remains at 7%. A few more new housing loans have been issued in recent months than during the first half of the year. The amount issued in car leases was 5% larger in September than a year earlier, meaning that the earlier very fast growth has slowed, but a lot is still being taken out in car leases.

Although deposit interest rates are still low, the preference remains for holding savings as bank deposits. Households hold a total of around 8 billion euros at banks, which is one tenth more than a year ago. Corporate deposits were reduced a little in September and now stand at 6.7 bn euros.

The banking sector earned 73 mLn euros in pre-tax income in the third quarter, which was 8% less than in the same quarter of last year. Administrative costs are higher than they were, and less was earned from service fees. As the banking sector has seen rapid growth in assets at the same time, by 4 bn euros to 29 bn, the combined impact of lower income and increasing assets has reduced the return on assets of the sector. The rapid growth in the assets of the banking sector was affected very much by Luminor Bank, which brought its Latvian and Lithuanian units under its Estonian headquarters as branches.

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