The Bank of Estonia puts this primarily down to the gradual rise in unemployment in recent years.

However, most major banks in Estonia report no significant surge in the number of people defaulting, thanks in part to home loans dominating their portfolios.

Bank of Estonia economist Taavi Raudsaare told ERR that people's ability to repay loans is largely influenced by whether they have a stable income and employment.

He said: "While unemployment in Estonia cannot be considered to be high, it has been rising gradually over the past couple of years, and related to this is somewhat of a rise in the volume and share of overdue loans.

"This is particularly the case with the rise in the volume of loans in arrears for consumer loans. This is logical, as these are primarily loans which carry a higher credit risk than home loans," Raudsaare went on.

The Bank of Estonia reports that consumer loans overdue by more than 60 days amounted to €55 million in August, up from €35 million in August 2023.

Similarly, the volume of home loans overdue by over 60 days grew from €14 million last August to €20 million in August this year.

Most of the major banks however say that their clients are not facing significant problems with repayments; while there have been "some changes," this does not constitute a drastic rise in the number of loan defaulters.

Sille Hallang, head of retail banking at SEB, told ERR the volume of overdue loans has grown slightly, "but this is due to an increase in the principal balances of these loans."

The number of consumer loan defaulters has by contrast seen a slight uptick, Hallang said, though not enough to impact the overall quality of SEB's loan portfolio.

Meanwhile at Swedbank, Anne Pärgma, head of bank's mortgage loan division, said despite the uncertain times and rising living costs, clients there, too, are handling their loan payments well.

The share of loans overdue by more than 90 days, as opposed to 60 days, remains at less than 0.05 percent of the total, Pärgma said.

Tanel Rebane, head of retail banking for the Baltics at Luminor, also said clients are managing their obligations effectively, with the volume of overdue loans remaining consistently low,. In fact so far as mortgages go, this has fallen recently, he added.

The Bank of Estonia evaluates the general ability of individuals to manage loan repayments as "fairly good."

Taavi Raudsaare at the Bank of Estonia noted that only 0.17 percent of all mortgage loans are overdue by over 60 days, a lower level than before the Covid crisis and comparable with the picture in 2016.

The major banks have not noticed a surge in defaults mainly because home loans make up the bulk of portfolios, and these are largely of a good quality.

Overdue loans rose by around €6 million on year to August, Raudsaare said, but this has to be put in the context of a total volume of bank mortgage loans of €11.6 billion.

Smaller banks may have noticed more of a difference, since consumer loans make up a larger portion of the loan portfolio, he added.

Banks recommend clients get in touch with them immediately they start to struggle with loan repayments, or even pre-emptively, for instance if an impending job loss or lost income due to mandatory military service is on the horizon.

That way, the bank can assess the situation and offer solutions which might include adjusting the repayment schedule, having a repayment "holiday," or refinancing a loan.

Tanel Rebane at Lumnior said taking collateral in the event of default is only a last resort when all other remedies have failed.

Rebane also expressed hop that the situation will remain stable, helped along by further falls in the Euro Interbank Offered Rate (Euribor) rate.

A one percentage point drop in the Euribor can translate to a €50 reduction in monthly payments for someone with a €100,000 loan over a 20 year term, he said. At the same time this needs to be offset against continued inflation elsewhere.

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