Siret Vildo, Financial Sector Policy Division of Eesti Pank, Specialist

In August, the corporate and household loan and leasing stock increased by 2.1 billion kroons, i.e., 0.8%. The month-on-month portfolio increase has remained relatively steady during the past three months. The annual growth of the loan and leasing portfolio has declined across all sectors with credit growth being above the average as regards loans issued to households and to the industrial sector. During the past year, household consumer credit growth has seen the most rapid decrease - its year-on-year growth has dropped from 53% last year to 21% in August 2008. The annual growth of the entire loan and leasing portfolio fell from 17% in July to 16% in August.

In light of the recent economic developments, the volume of overdue loans has continued to increase as expected. The share of loans overdue for more than 60 days in the loan portfolio increased from 1.8% in July to 2.2% in August. Like in earlier months, the growth of the share of overdue loans is chiefly driven by the real estate and the construction sector.

The share of overdue loans is expected to increase even more in the coming months, but the Estonian banking sector is well enough capitalised to cope with the strenuous economic situation ahead. The aggregate capital adequacy ratio of banks, which describes the buffers banks have for tackling possible problems, has remained at a high, 18% level (the minimum capital adequacy requirement is 10% in Estonia and 8% in Europe).

Household and corporate deposits increased 645 million kroons, i.e., 0.6% in August. Annual deposit growth dropped from 7% in July to 6% in August. The growth of time deposits has been stronger owing to the increase in interest rates and the share of such deposits in the total share of deposits has grown.

The average interest rates of housing loans and long-term corporate loans have followed the developments of the EURIBOR and reached the level of 6.1% and 6.5%, respectively. The interest margin added to the key interest rate did not increase much in August, but it is expected to be raised for new loans.

Figure 1. The annual growth of household and corporate loans and leases in Estonia

Figure 2. The volume of corporate and household deposits (EEK million) in Estonia and the annual deposit growth rate (right scale)

Figure 3. The weighted average interest rate on housing loans and long-term corporate loans issued within a month and the 6-month EURIBOR

As from January 2008, Eesti Pank publishes a monthly statement on the most relevant financial sector indicators. The respective statistics and publication calendar are available on the web site of Eesti Pank at www.bankofestonia.info/pub/en/dokumendid/statistika/pangandusstatistika/tabelid/.