“I am a 100% supporter of lending in lei, I want to see more leu loans, but in order for that to happen, the central bank needs to cut the interest on leu-denominated loans to levels similar to the euro rates. I would rather grant loans in lei, but the interests are much higher than for euro loans, this is a clear reality.”
The Romanian central bank (BNR) has in the past year and a half pursued an ambiguous policy, freezing the key monetary policy rate at 6.25% a year, but allowing ROBOR (interbank interest rate used as reference for leu loans) to drop significantly below the key rate, at least for maturities of up to three months.
The central bank said it was supporting the economy and lending in lei but keeping interbank rates lower, but it has not managed to keep those same rates from being highly volatile. Therefore, the market alternated between periods where overnight rates fell towards 2% and those when they were higher than 5%. And the volatility affected the leu lending because setting a price became more difficult.
There is a lot of volatility on the money market, Stewart says, noting that interests had climbed lately because the Finance Ministry did not inject into the market as much money as players had expected and the central bank had to boost liquidity through repurchase agreements. After the repos, interests plunged once again.
“The central bank’s job is to ensure a certain degree of stability, but the volatility will probably stay high because of Greece debt issues,” Stewart adds.
The banker, who has over 20 years’ experience on Wall Street, does not believe Greek-controlled banks operating on the Romanian market have liquidity problems, especially those who contribute to the calculation of ROBOR continue to have access to funding. Stewart also says he is not worried about the possibility of a banking crisis in Romania.
Verbally, BNR asked bankers several times in the last year to cut interests on leu-denominated loans, but was unsuccessful. Only in the last few months have the large banks managed to lower deposit interests towards 5% a year, creating the premises for the price of loans to decline.
About the draft regulation on lending to individuals launched by the central bank, Stewart says he can’t see why the central bank is not saying exactly what the purpose of these new regulations is.
“I don’t understand why they are not saying exactly what this regulation is meant to do.”
He says that some understand it was meant to discourage lending in foreign currency, but then the central bank should say clearly if this is the case. The regulation allows lending in foreign currency to continue, but says you can grant a consumer loan only for up to 5 years.
“I mean, will clients not be able to get around this restriction by saying they want money to refurbish their home, but in fact take out a loan to buy a car?,” says Stewart.
“I don’t like to expose clients to a forex risk they don’t understand, I agree there is a need to stimulate leu lending, but I think it’s important for such a regulation to have a clearly stated purpose.”
Stewart says a significant impact will be felt on the market after the application of this new regulation, probably as of the beginning of 2011. “Lending will decline next year.”
(English version by Daniela Stoican)