Restrictions introduced because of the coronavirus mean a broad economic downturn is expected this year, and many companies and households will face difficulties in repaying their loans, the Bank of Estonia says.
To avoid payments becoming overdue, banks have currently accepted applications for payment holidays for around a tenth of the total value of their loan portfolio. This has helped prevent growth in overdue loans, the Bank of Estonia says. The share of loans overdue more than 30 days remains very small, at only 0.8 percent, or €138 million, but the weakness in the economic climate suggests that difficulties will deepen.
Despite the issues in the economy, yearly growth in deposits increased in April by 11.5 percent for households, to €8.6 billion, and 9.5 percent for companies, to €7.2 billion. This is partly because the coronavirus crisis has increased caution and restricted opportunities for spending on consumption and for making investment decisions, the Bank of Estonia says.
It is also because the measures taken by the government have helped prevent a very large drop in household incomes. This has allowed them to build up financial buffers that allow them to cope better with possible difficulties that may arise.
Housing loans of €89 million were issued in April, which was a quarter less than the same month last year. The emergency situation will affect part of the housing loan market after a delay because some decisions, on loans for buying newly-developed property, for example, may have been made before the emergency situation was declared (on March 12-ed.).
The market for car leases has been affected more immediately, with 66 percent fewer car leases to households issued in April than a year earlier. Households took a third less in other loans and leases overall.
New long-term loans and leases worth €152 million were issued to companies in April, which is a third less than usual. Notably fewer loans to companies in real estate, construction, and manufacturing were issued as well, the central bank reports. Wide-ranging restrictions on economic activity have depressed corporate confidence. As there is still a lot of uncertainty about the further spread of the coronavirus and the economic impact, some planned investments have been postponed until the outlook for the economy improves.
The average interest rate on housing loans with collateral issued in April was 2.1 percent and the average interest rate on long-term corporate loans was 2.8 percent. Banks are being cautious about selecting new loan clients during the emergency situation, and loans have been issued to households and companies with strong finances. This means the fall in the average interest rate does not necessarily reflect a reduction in the interest margins of the banks, the Bank of Estonia says.
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Editor: Roberta Vaino