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Bank of Estonia economist: Euribor is rising, interest margins are falling | News




Euribor has risen rapidly in recent months, Raudsaar said according to a press release. The six-month Euribor, which serves as the basis for the majority of housing and business loans issued by commercial banks operating in Estonia, was still negative in early June, but had already reached 2% by mid-October.

Euribor is rising because inflation remains high across the eurozone, and the ECB Governing Council is tackling it by raising the interest rates at which commercial banks can deposit money or borrow from the central bank. This then drives up the interest rates at which commercial banks in the euro zone are willing to lend to each other, as shown by the Euribor.

At the same time, the interest margins added to the Euribor for mortgages and car rentals fell somewhat. The interest margin for newly issued home loans as well as for home loans where changes were made to existing contracts fell to an average of 1.6% in September, from 2.1% year-on-year. The interest margin on newly issued home loans alone simultaneously rose from 2% a year ago to 1.8% in September.

Interest margins are shrinking because banks operating in Estonia receive a large part of their funding from demand deposits, which have a near-zero interest rate that has not increased significantly. This means that the interest charges of banks in Estonia have not particularly increased either. The rise in Euribor, meanwhile, has helped them earn more interest on loans, which has allowed banks to reduce interest margins on their loans without losing profits, which they have done because of tighter competition. Competition has intensified as some banks have ambitious growth plans, the economist said.

At the same time, interest margins on loans granted to companies remained stable over one year. Given that the economic outlook has deteriorated over the past year and risks have simultaneously increased, the fact that interest margins remain the same is undoubtedly good news for businesses.

It is likely that some other credit conditions have tightened somewhat, and that this factor combined with the rise in the Euribor has tempered corporate assessments in the credit market.

Access to loans is generally still good at the moment, Raudsaar noted. This is indicated by rapid loan growth, for example, as annual growth in the business loan and lease portfolio accelerated to 12.5% ​​in September. Real estate companies, in particular, stand out for their better opinion on loans as well as their rapid growth in borrowing.

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