BR ANALYSIS. Lending activity in Romania shows signs of slowing down, even stagnating

After a 2018 in which lending activity kept pace with previous years, the first half of 2019 brought weaker lending. With lower confidence in the economy and limitations imposed by the BNR a year ago, lending is approaching stagnation, both for consumer loans and mortgages, including Prima Casa (the First Home program).

The balance of non-governmental credit granted by credit institutions increased in June by 0.8 percent (1 percent in real terms) compared to May 2019, to RON 259.57 billion, while, compared to the corresponding period of last year, the advance was 7.1 percent (3.1 percent in real terms), according to data from the National Bank of Romania (BNR).

Compared to May, credit in RON was up by 1.3 percent (1.5 percent in real terms), while credit in foreign currency expressed in RON fell by 0.1 percent (expressed in euros, credit in foreign currency increased by 0.1 percent).

Loans in the national currency amounted to RON 172.77 billion. Loans granted to households rose by 1.3 percent in June compared to May (RON 101.15 billion), and those for companies increased by 1.3 percent (RON 71.62 billion).

Credit in foreign currency expressed in RON decreased to RON 87.79 billion. Loans for households (RON 35.971 billion) dropped by 1.2 percent compared to the previous month, while loans for companies (RON 50.82 billion) climbed by 0.6 percent.

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Compared with the same month of the previous year, nongovernmental loans registered a hike of 7.1 percent (3.1 percent in real terms), on account of the 9.6 percent advance in the share in RON (5.5 percent in real terms) and the 2.4 percent increase of the component in foreign currency expressed in RON (expressed in euro, foreign currency credit grew by 0.8 percent).

OUTSTANDING LOANS ON THE WANE

The total value of individuals’ and companies’ outstanding loans in RON in June 2019 came to RON 4.84 billion, down by 2.15 percent compared to the amount reported in May, while arrears in foreign currency loans decreased by 8 percent, to RON 2.58 billion (equivalent).

At the end of June, Bucharest residents had outstanding loans in RON amounting to RON 1.87 billion and in foreign currency, RON 1.06 billion (equivalent).

Total credit in the national currency contracted in the capital reached RON 61.89 billion, and loans in foreign currency, RON 43.65 billion. Consumer credit increased by 2.1 percent in the first six months of the year to RON 58.9 billion. The pace slowed substantially compared to the first half of last year, when it stood at 5.2 percent (RON 2.8 billion). The increase in credits in national currency eased from 9.6 percent last year to 4 percent. The slowdown may be a direct consequence of the BNR’s decision to impose a limit of 40 percent on the degree of indebtedness for consumer loans starting this year. The limitation was adopted for the first time since 2007, when it was decided that individual borrowing was too high.

The pace of mortgage expansion has fallen behind that of consumer loans. The growth rate was 4.1 percent (or RON 3 billion), taking the indicator to RON 76.5 billion. In the first six months of 2018, the rise was 5.6 percent (or RON 3.7 billion). Home loans in the national currency registered an advance of 7.7 percent (or RON 3.7 billion) to a balance of RON 52.2 billion in the first six months, while in the same period last year the increase was 12.5 percent (or RON 4.9 billion).

Foreign currency mortgages dropped to a balance of EUR 7.6 billion, while in 2012 they amounted to EUR 16 billion. Loans in foreign currencies decreased substantially after the period of conversion of foreign currency portfolios into RON.

The balance of loans to companies rose by 3.4 percent (or RON 3.7 billion) to RON 114.4 billion in the first half of the year, while in the same period of last year the advance was 3.3 percent (or RON 3.4 billion). Despite the slightly higher growth than last year, the level remains below that recorded in 2012. The growth pace of RON lending to companies fell to 2.3 percent (or RON 1.5 billion), while that of foreign currency loans rose from 0.7 percent to 3.3 percent (or EUR 320 million).

EUROZONE LENDING AT ITS HIGHEST

Eurozone lending posted the most significant post-crisis advance in April, while lending to companies had the best growth rate this year, a study released by the European Central Bank (ECB) shows.

In May, lending to households increased by 3.3 percent, similar to the April advance, being the highest level since the beginning of 2009. Meanwhile, loans granted to companies rose by 3.9 percent, similar to the April advance, a steady gain, even though they remain below the record 4.3 percent since September, the ECB reported.

CASH OUTSIDE THE BANKING SYSTEM

Interestingly, in 2018, the value of cash outside the banking system increased by 7.1 percent (to RON 72.25 billion at the end of the year), according to the Annual Report of the BNR. Since banks in Romania are required to have initial capital of at least RON 37 million at the moment of authorization, this means that the money outside the banking system would cover the establishment of almost 2,000 new credit institutions.

The maximum value of cash outside the banking system during 2018, namely RON 73.99 billion (up by 7.3% compared to 2017), was reached on December 21, 2018, as a result of demands raised for cash for the winter holiday.

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