The loan to deposit ratio had gone down in the past year but things changed in the last few months so it remains to be seen what resources banks will use to fuel lending since the lines of credit from their shareholders abroad have significantly shrunk.
“We can gauge the financial intermediation degree from the loan to deposit ratio for consumers and companies. Going back to a ratio closer to 100% means balancing the funding in terms of sources. On the other hand, it might indicate stagnation of lending in Romania,” says Rozalia Pal, chief economist of Garanti Bank.
The loan to deposit ratio had dropped by almost 20% to almost 90% since mid-2013 to early this year. It fell below 100% last year for the first time since 2007, after having peaked at 130% in 2008, when lending was fueled by lines of credit from parent banks.
The foreign-held banks that account for 90% of the Romanian banking system have withdrawn EUR10 billion worth of lines of credit for their subsidiaries in the past six years, which were replaced by deposits attracted from local customers. The lines of credit from parent banks dropped to about EUR12 billion.
The deleveraging was at its worst in 2013, when parent banks withdrew 70% of the loans maturing in less than one year granted to their local subsidiaries. Domestic funding, 80% of which comes from deposits, rose by EUR12 billion. Exposure of parent banks to local subsidiaries went down 16% last year.
Deposits increased during the crisis, while lending decreased, due to the decline in the foreign currency lending. In comparison, loans were 20 billion lei (EUR4.5 billion) higher than the deposits in local banks in May 2013.
Deposits exceeded loans last summer for the first time in seven years, amid a rising demand for leu loans. Consumer and corporate loans reached almost RON213 billion at the end of May, down 2% on the on the year-ago month, while deposits rose by 6% to RON228 billion.
Leu lending reached an all-time high of RON99 billion last month, largely driven by the 20% increase in retail lending. Individual customers took out almost RON18 billion worth of new loans in May 2014-April 2015, more than 50% higher than in the year-earlier period. Interest rates at an all-time low are the main growth driver of the leu lending.
(English version by Loredana Fratila-Cristescu)