Businesses have a poor opinion of the borrowing environment, as interest rates have risen and the economy is weak, Raudsaar said. Estimates of the said environment reflect the performance of various sectors of the economy, as opinion has deteriorated the most at companies in transport and manufacturing while construction companies likewise remain downbeat.

"The opinion of Estonian companies about their options for financing are about as good as those of European countries, but their opinion of banks' willingness to lend has deteriorated the most," he noted. "This is partly because the widespread use of floating interest rates in loan contracts means that the rise in base interest rates has had a more direct and faster impact in Estonia than in many other countries in the euro area."

While this has yet to happen in many other countries, the rise in interest rates in Estonia has by now almost entirely been passed on into the costs for borrowers.

Higher loan interest rates than in other countries in the euro area is particularly a problem for the country's exporting companies.

Interest rates on similar loan products have been around 1 percentage point higher in Estonia than the euro area average in recent years. Nominal economic growth and inflation have generally been higher in Estonia than elsewhere, meaning that the nominal return on projects financed with borrowed money is also higher, real interest rates are generally lower and loans are also easier to repay.

"There may be more of a problem for the competitiveness of exporting companies, as Estonian companies have to compete in foreign markets with companies that often have some advantage in financing costs," Raudsaar explained.

Although interest rates on loans are high, access to corporate and housing loans in Estonia nevertheless is not worse than in other countries. This is indicated by survey data and by the faster growth in loans than in the euro area.

The good capacity of the banks to lend is aided by their strong profitability, high levels of capitalization and low levels of problem loans. Lending standards and conditions were tightened in 2022, but had not generally been tightened any further in 2023 despite the recession dragging on. The share of applications for corporate loans that were rejected was a little larger in 2023 than a year before, but the share of approved housing loan applications on year went up.

According to Raudsaar, interest rates have probably peaked and may be expected to come down over the coming years, which may encourage companies and households to make more investments and use more equity and debt capital.

"Uncertainty about the outlook for the economy and the rapid rises in prices and interest rates made many companies and households cautious about deciding to invest or borrow last year, and growth in borrowing slowed," he noted. "Inflation falling and interest rates stopping rising will restore confidence."

According to the Bank of Estonia's December forecast, the stock of loans to companies and households in Estonia should grow by around 5-6 percent annually in the coming years.

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