The average interest on retail leu loans reached 12.3% in October after increasing for four months in a row. The gap to the average cost of a loan in euro widened to almost eight percent, according to central bank (BNR) data. Euro loans continued to become cheaper on the other hand, with the average interest rate down to 4.7% a year.
The increase in interest rates over the last few months shows a radical change from the first part of the year when the leu loans had gained support from the central bank and bankers and interests were going down. The cash on the market has visibly shrunk lately and inflation surged.
“The decline in the cost of leu loans depends on the inflation meeting BNR target and on the speeding up of the economic growth to allow for the non-performing loan rate to decline. BNR has shown it is interested in stimulating lending in domestic currency, which is why I think interbank rates will not rise too much above the current levels, even though the inflation is higher than targeted and pressures on the leu are still there,” says Eugen Sinca, analyst with Romania’s largest bank, BCR.
The central bank halted the monetary policy easing cycle in May and froze the key rate in place at 5.25% a year and also drastically limited its cash injections into the money market in the last two months. The three-month ROBOR index, which most leu loan contracts use as a reference, is now at over 6% a year, two percent higher than in the spring.
The average rate of retail leu loans increased by 1.2% since the low reached in mid this year. Leu loans are cheaper than they were a year ago today, though, because the rate increase has not yet offset the decrease pace of the beginning of the year.
Euro loan rates fell to a low of 4.7% a year, after eight consecutive months of decline. The cost of euro loans went down because the EURIBOR, used as a reference for euro loans is almost zero now.
Still, analysts expect the interest rate gap between lei and euros to stop somewhere close to the current level. The decline in euro loan prices might stop as local banks find it harder and harder to get funding from abroad and have to compete with high interests to raise foreign currency from local market.
“Competition among banks seems to be fiercer when it comes to attracting foreign currency compared with leu resources. Moreover, a great deal of banks are trying to make up for the lower funding from their parent banks with local funding. As the access to leu resources is easier, banks will be more willing to grant leu loans rather than loans in other currencies,” believes Florentina Cozmanca, senior economist of RBS Bank.
Banks seem more willing to attract corporate customers for the time being, as the rates of leu loans granted to such clients fell by 0.5% in October to 9.6% a year. Bankers say they noticed an increase in demand for corporate funding at the end of last year, while individual customers are still reluctant.
“Customers will gradually shift to leu loans, especially for short and medium maturities and for consumer loans (…),” Eugen Sinca said.
Still, bankers failed to sell loans either in lei or in euros in October to cover repayments by corporate customers. The loans granted to individuals were flat, according to central bank data.
The volume of loans granted to individuals and companies reached 230 billion lei (EUR50.6 billion), down by about RON600 million from September, because even sales of leu loans froze after several months of growth.
The leu lending fell by 0.3% in October to RON84.5 billion. It was 4.7% up on the same time last year below the inflationary rate. Foreign currency lending continued to increase and reached EUR32 billion.
(English version by Loredana Fratila-Cristescu)