The volume of leu-denominated loans granted by banks to consumers and companies stood at RON80.7 billion (EUR18 billion) at the end of April, down 1.2% from December, even though the average interest rate on leu loans fell by 0.7% in the first four months, according to the data published by the central bank (BNR).
The average interest rate on new leu loans had gone down to a minimum of 9.7% a year in March, according to the latest data made available by the central bank, while consumers continue to pay two-digit interests. Still, the average interest rate for euros is almost twice lower.
“Customers stay away from leu loans because interests are still high, Even though nominal rates went down, the real margin increased because the inflation was faster to decrease,” says financial analyst Florin Citu. The annualized inflation fell to an all-time low of 1.8% at the end of April, 1.3% lower than in December 2011.
The signal sent by the central bank to encourage lending in lei last fall, when it cut the key rate, the constant feeding of cash into the market while restricting consumers’ access to foreign currency loans, does not seem to have persuaded the bankers, who continue to complain about the lack of eligible demand or about the absence of long-term leu resources.
The risk appetite of the bank remained low, the decline in loan interests followed the monetary policy rate closely, which was cut by 0.75% from December through March. Moreover, the interest rate cut on the interbank market was twice faster, and bankers boosted their margins.
Three-month and six-month ROBOR, the indicators used as a reference for most loan contracts signed in the last two years fell by 1.5% from December through March to 4.5% and 5% a year. Therefore banks gained more from the spread between deposit and loan rates.
This comes after bankers have tried various solutions to boost revenue to offset the spending on risk provisions. Many customers stopped repaying their loans because of the crisis and banks had to set aside billions of euros to offset the loss.
Short-term prospects for the leu lending are not too encouraging either, considering the central bank stopped its key rate reduction process, leaving it at 5.25% a year, while recent turmoil on international markets led to higher rates on the interbank market.
Three-month ROBOR stood at 5.32% a year on Friday, almost one percent higher than at the end of April. A 1% increase in the interest rate of a mortgage loan translates into an about RON100 increase in the monthly installment. Most loans in lei, however, are unsecured consumer loans, whose installments are worth several hundred lei a month, and therefore have a lower impact on them.
The leu borrowing might be encouraged by the recent trend of the euro, considering it has gained 3.4% on the leu since the beginning of the year which is three times more than in the entire last year. Analysts say the gap between leu and euro interests remains too wide, so the number of those shifting from foreign currency to lei may not be that high.
“The leu depreciation will have one effect and that is the decline in demand for foreign currency loans, without a customer shift towards loans in domestic currency in any way,” Florin Citu believes.
Even though the leu lost 15% during the crisis, banks’ customers took on more and more debt and the foreign currency loans now stand at 65%. The volume of foreign currency loans was EUR32.8 billion (RON144 billion at the end of April, up almost 6% on the same time last year.
(English version by Loredana Fratila-Cristescu)