Despite what have been two tough coronavirus crisis years, Estonian commercial banks issued home loans in record volume in October. The total home loan balance is €11 billion, up more than 5 percent on year. Banks' home loans portfolio grew by 8.6 percent over the past year for the fastest growth in a decade.

"The average home loan sum broke records by exceeding €100,000 in the third quarter," Gaili Grüning, economist for the Bank of Estonia, told ERR.

The loan sums of borrowers in the lowest quintile by income have grown the most. The Bank of Estonia is worried to see a lot of loans granted to low-income household where the monthly payment is close to its 50 percent of monthly income cap.

"We have seen the relative importance of loans where the monthly payment is closer to the 50 percent of income ceiling grow in the last three quarters. Volumes have grown faster in the case of lower-income households. And as concerns smaller banks," Grüning added.

The central bank finds that Estonian banks LHV, Coop and Bigbank have more high-risk clients.

"Credit risk assessment is the most important thing we look for and we are acting responsibly there. While banks are allowed to make exceptions regarding the 50 percent of income cap, we have not made any," said Catlin Vatsel, head of private loans at LHV.

She said that LHV has very few bad loans in its portfolio. Bank of Estonia data suggests the Estonian bank's market share has grown from 5 percent to 11 percent in the last year alone, making it a systemically important credit institution, next to Swedbank and SEB. That is why the central bank is raising LHV's capital buffer requirement.

"The buffer ensures the bank has enough assets to weather difficulties and grant loans in a situation where the economy needs supporting," Grüning said.

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