Bank of Estonia: Second quarter banking sector profit down 3% on year

Annual growth of the loan and leasing portfolio of Estonian non-financial companies and households.
Annual growth of the loan and leasing portfolio of Estonian non-financial companies and households. Source: Bank of Estonia

According to Bank of Estonia economist Taavi Raudsaar, while borrowing by households remained high in June and household and corporate deposits continued to see robust growth, the second quarter net profit of Estonia's banking sector fell 3% on year to €82.5 million.

Households continued to borrow actively in June, and the demand for car leases remained especially high, Raudsaar said in a press release on Tuesday. The value of new car leases signed in June was up 30% on year, and the annual growth of the car lease portfolio reached 20%. The annual growth of other consumer loans was also rapid at almost 9%.

The fast increase of consumer loans reflects both the current favourable economic environment as well as increased supply. Consumer loans and leases make up around one fifth of the total loan and leasing portfolio of households.

The stock of housing loans, meanwhile, grew in June at around the same rate as in previous months. €117 million worth of new housing loans were taken out, up 12% on year. This growth stems from higher-priced real estate and larger average loan sizes, but also from an increased number of transactions. The annual growth of the housing loan portfolio has been close to 7% over the past six months.

Corporate loan growth has been more moderate than household loan growth due to low investment activity. Companies' loans from banks operating in Estonia did increase in the second quarter, however. The stock of new loans grew in all major sectors compared to the year before, and the increase of the loan portfolio has been relatively homogeneous, Raudsaar wrote.

The average interest rate for new housing loans has risen somewhat since the start of the year, reaching 2.5% in June. Despite reaching its highest level of the past four years, it can still be considered low in the long term.

The average interest rate of new corporate loans, meanwhile, largely depends on the kind of companies that sign loan contracts over a specific period and the kind of projects they undertake, due to which it can see large fluctuations. This month, for example, the average interest rate was down to 2%.

The deposits of Estonian households and companies grew rapidly alongside active borrowing. The stock of deposits held by banks increased by almost 12%, or €13.8 million, on year.

The net profit of the banking sector fell somewhat in the second quarter of 2018. The net profit of the quarter totalled €82.5 million, down 3% on year. At the same time, however, net interest income rose by nearly 3% on year, thanks in large part to smaller interest expenses. Service fee income increased, as did wage and administrative costs. One-off factors boosting profit were the reversal of previous provisions as well as dividends from subsidiaries. As a result of new income tax rules that took effect on 1 January, banks calculated around €8 million for income tax expenses in the second quarter.

Editor: Aili Vahtla

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