Banks and finance minister react to interest cap draft bill: “I am for the free market”

The initiative to cap the effective interest rate for mortgage and consumer loans is criticized by the financial institutions in Romania, while the minister of finance, Eugen Teodorovici, suggested that the intervention of the state in the market should be limited.

“The market needs to be the one that has the required mechanisms to regulate the offer and demand as a game rule. The state mustn’t intervene, if possible and shouldn’t intervene in the market except when there are slippages one way or another,” said Teodorovici.

According to the draft bill that received a favorable vote in the budget, economic and legal committees in the Senate, the effective interest rate for mortgage loans can’t exceed more than 2.5 times the key interest rate set by the central bank. At present, the key interest rate stands at 2.25 percent, which means that the maximum interest rate on a mortgage loan can’t exceed 5.4 percent, according to MP Daniel Zamfir, the initiator of the draft bill.

In the case of consumer loans issued by non-banking financial institutions (IFN), the effective interest rate will be limited at 18 percent.

Florin Danescu, the executive director of the Romanian Association of Banks (ARB), told ZF.ro that “this initiative will have a major impact on consumers, credit institutions and the economy”, although he didn’t elaborate on this.

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Meanwhile, the executive director of the Council of Banking Employers in Romania (CPBR), Bogdan Preda, said that the members of the association and of IFNs were taken by surprise. He said that CPBR will commission an impact study on this legal change.

Analysts have warned that the cap of interest rates might limit the availability of loans for people with a poorer credit score that need financing, while banks might ask for additional guarantees.

The draft bill in still in the early stages of approval. It has to be voted in the Senate and Chamber of Deputies, which means that additional amendments might be approved.