BCR, the largest local bank, this year started selling leu-denominated home buying loans with a fixed interest of about 6% in the first ten years. The longest fixed interested period had been previously offered by BRD, the second largest bank in the system, seven years, during which the bank would charge only 4% a year for its euro loans, requiring a down payment of at least 25% of the price of the home, though.
While a customer taking out a euro loan also takes the foreign exchange risk with it, a fixed interest leu loan does not come with either the foreign exchange or interest risk. The problem is the fixed interest level, considering the leu cost downward trend on the market at the moment.
“It’s good to have such instruments introduced on the market because they provide predictability, but the problem is the interest rate. The 6% per annum might be a bit high considering those are long-term loans,” says Alin Iacob, chairman of the Romanian Association of Financial Services Users (AURSF).
“Maybe in ten years we’ll switch to the euro and 6% for a euro loan might be a bit high (…)”
The three and six-month Robor indices used as a reference for the retail leu loan costs are now at less than 2% so a 6% interest means 4% margin for the bank. Moreover, leu loan interests have gone down lately, despite some tension on the money market. The trend was encouraged by the central bank’s monetary policy easing, which has just cut the key rate to an all-time low of 2.5% per annum.
Ioana Mihai, the head of the secured loan department with BCR says that 80% of the customers that took out a mortgage loan last year chose fixed interest products. The bank had been previously offering a fixed interest for only up to five years.
Even though the interest rates are going down, the money market is still volatile. Last year, interbank interests rose suddenly in February and September. The times of interbank interest volatility are when very many customers choose fixed interest loans, said Liviu Andrei, chief executive of loan broker Alliance Finance.
(English version by Loredana Fratila-Cristescu)