The interest rates paid by banks on clients’ deposits for the first time fell below 5% in April a year and to 4.8% a year in May. Banks cut lending interest rates as they were able to get cheaper financing in the first part of the year, but analysts expect interest rate declines to be limited in the coming period, given market uncertainties.
“The start of the monetary relaxation cycle is not yet reflected in the monetary market, so the mirroring of these measures in interest rates for those outside the banking system is somewhat distant and weak. In addition, this monetary relaxation takes place while banks’ resources are under pressure and the dynamic of deposits is weaker than in the past few years,” says Vlad Muscalu, senior economist of ING Bank.
BNR cut its key interest rate on lei to a historic low of 5% a year at the beginning of July and governor Mugur Isarescu said after the monetary policy meeting that this relaxation cycle should also show in loan interest rates as early as this summer.
“We could see more significant interest rate cuts for loans in lei in the future, with positive effects on loans in Romanian currency. Currently there are already offers for loans in lei dedicated to individuals with interest rates of around 6%, which compare with loans in euros in terms of costs, but the exchange rate risk is zero,” comments Eugen Sinca, chief analyst within BCR.
Sinca says the long-term trend is for a relaxation of the central bank’s monetary policy in parallel with a rise of interest rates in the euro zone, which will lead to more similar interest rates on lei and on euros.
The average interest rate on loans in euros is currently around 5% a year, while the cheaper mortgage loans in lei start from an interest rate of 7% a year.
At aggregate level, the margin between the interest rate on loans and on deposits amounted to six percent in May, half a percent higher year-on-year. This means that banks keep up pressure on good-paying clients, as banks seek to recoup their losses from non-performing loans. Net interest margins could remain high in the future as well, since banks’ profits remain under pressure.
(English version by Daniela Stoican)