OREANDA-NEWS. October 28, 2009. The volume of loans overdue by more than 60 days shrank by 111 million kroons in September, amounting to 6.4% of the loan portfolio by the end of the month. The stabilisation in the volume of problem loans in recent months refers to the possibility that difficulties with repaying loans will be smaller in the current cycle than forecast in summer. However, preliminary estimates show the volume of overdue loans will start to contract faster only in 2010 and the amount of households and enterprises encountering difficulties with meeting their loan obligations will increase in the next months, reported the press-centre of Eesti Pank.

Compared to August, the volume of overdue loans in September was smaller as regards enterprises in the manufacturing and trading sector. At the same time, the loan portfolio deteriorated further in the real estate and the agriculture sector. Construction-sector enterprises are still facing the largest difficulties with paying back their debts - the volume of problem loans in this segment amounts to 20% of the portfolio. The share of housing loans overdue by more than 60 days did not move from its 4.2% level in September.

The low base interest rate has continued to support borrowers in their monthly loan repayments. The interest rates on new loans issued have remained rather similar to previous months' levels. In September, the average interest rates on housing loans and long-term corporate loans were 3.5% and 4.4%, respectively.

The total volume of loans and leasing to enterprises and households declined less in September than in earlier months. As at the end of the month, the total volume of the loan and leasing portfolio amounted to 256 billion kroons, which is 1.3 billion kroons, i.e., 0.5% smaller month-on-month. Seasonal factors slightly slowed the loan volume shrinkage in September, when study loans in the amount of 200 million kroons (20% less than last year) were issued. The financing of single large infrastructure projects increased the volume of new corporate credit - 2.5 billion kroons worth of business loans were added, which is over 900 million kroons more than in August.

The level of the total deposit volume has remained unchanged in 2009, irrespective of dwindling economic activity. The volume of corporate and household deposits increased by 180 million kroons in September, amounting to 106 billion kroons. This was to some extent caused by uncertainty in economic developments, but growth in the share of time deposits has also been supported by the relatively favourable interest rates on kroon deposits.

Banks operating in Estonia suffered losses in the amount of 1.9 billion kroons in the third quarter. This was just a couple of million kroons more on the previous quarter. The negative results of banks were chiefly affected by the 2.5 billion kroons of provisions for possible loan losses. The higher level of write-downs in the third quarter was partly caused by one-off factors: write-downs made in a parent bank were registered on the balance-sheet of its subsidiary. Without considering the write-downs, the net profit of banks was nearly 600 million kroons.

The capability of banks to cope with possible loan losses has been good. The average capital adequacy of banks declined from 21.8% to 21.4% due to the large write-downs in September. The lowest indicator among banks was 14%, which still denotes a sufficient buffer in the light of the 10% minimum requirement.

The financial sector statistics and publication calendar are available on the web site of Eesti Pank at www.bankofestonia.info/pub/en/dokumendid/statistika/pangandusstatistika/tabelid/.