Bank of Estonia: Borrowing slightly more expensive in 2019

The Bank of Estonia is the country's central bank.
The Bank of Estonia is the country's central bank. Source: (Martin Dremljuga/ERR)

According to the Bank of Estonia, the average interest rate for housing loans granted in May was up on the previous month at 2.6 percent, as was that for long-term corporate loans at 2.9 percent. There has been a slight upward trend in interest margins in 2019, which can partly be explained by the shortage of competition in some segments of the loan market.

As Bank of Estonia economist, Jana Kask wrote on Wednesday, interest rates are also affected by the assessments by banks of the risks of individual lending projects.

The stock of bank loans and leases issued to companies has grown a little more strongly in recent months, which boosted annual growth to 6.1 percent in May. Growth in loan portfolios was driven in the first half of the year by individual large transactions in the energy sector, but in the past month it was mainly companies in agriculture and real estate that increased their borrowing, the Bank of Estonia wrote.

In contrast, weak investment by industrial companies has meant that the stock of loans and leases to them is a little smaller than it was at the end of last year.

The stock of housing loans was 7 percent larger in May than a year earlier, which was a little less than the growth rate in April. About the same number of new housing loan contracts were signed this spring as in the same period of the previous year, and so the rise in the amount borrowed has been due primarily to average loans increasing in size.

Car leases showed notably faster growth than housing loans, with a year on year growth of 19 percent in May. Other consumer loans grew by a slower 5.7 percent. The rate of growth of car leases and other consumer loans also increased over the past couple of months, partly due to the addition of a new bank and a new leasing company to the list of institutions with a duty to report.

Although slower growth in the economy means that growth in lending to households should also slow, the demand for loans will probably be maintained iby the strong labour market, rapid wage growth, and low interest rates, Kask wrote.

Household deposits were up more than 9 percent year on year, as growth remained fast. Corporate deposits also increased in May, but the yearly rate of growth fell to 0.8 percent. The rate of growth of corporate deposits slowed notably because individual very large deposits a year earlier had raised the reference base.

For the Bank of Estonia's visuals and more data, click here.


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Editor: Dario Cavegn

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