Credit growth quickens to 9.2% y/y in Estonia

Credit growth quickened to 9.2% y/y in January after decelerating in the previous two months, data of the central bank showed on Thursday. Looking at the monthly figures, lending increased by 0.6%, which was well above the average growth rate in the previous five years. The acceleration of the annual growth came on the back of retail lending increase, which reached its highest level since Apr 2009. This suggests that lending will continue to contribute to the increase of household consumption, which is expected to remain strong. The commercial undertakings went up by 7.8% y/y, suggesting that investment activity is recovering, supported by strengthening external demand. Moreover, loans to other financial institutions increased by 38.0% y/y likely due to transactions between some local banks and their Nordic parents. On the other hand, lending to the general government declined by 1.5% y/y, underpinned by the fiscal surplus. In regards to the credit quality, the NPL ratio rose back to 3.3% on the back of increase of the share of loans up to 30 days.

Deposit growth remained on an upward trend and reached 6.7% y/y. Resident deposits went up by 9.8% y/y with the biggest contribution coming from the 10.2% y/y increase of deposits of non-financial corporations. This suggests that domestic companies have some accumulated cash buffers which would help them to absorb most of the continuing robust increase of labor costs. Household deposits increased by 7.6% y/y, aided by higher propensity to save. In the meantime, the decline of household deposits eased to 10.6% y/y due to an increase of deposits of households.

Interest rates on loans to both companies and households increased, after falling noticeably in December. At the same time, interest rates on deposits also increased, but at a less pronounced pace.

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