The Romanian National Bank is planning to supplement its regulation on retail and corporate loans in foreign currency, through a draft regulation package that is under public debate until September 20. This will also impact consumer loans in foreign currencies, which are not protected from currency exchange risks. The bank wants to decrease the volume of loans in foreign currencies taken out by customers operating with the local Romanian currency (RON). The banking sector will have 90 days to update its lending packages to reflect the new provisions.
“These changes will significantly reduce the sums in foreign currencies that can be lent, in respect to revenue. Those who choose to borrow in RON will be less affected,” said Vlad Elias, managing partner at Cooper Pear, a financial consultancy.
The new provisions will apply to subsidiaries of EU Member States’ credit institutions that are present in Romania. The central bank also states that a loan for housing investment needs to be guaranteed by a mortgage, whether it is with the sole purpose of acquiring or maintaining ownership of land and/or a building, or for extension or modernization works on a building.
Consumer loans will be treated differently from housing loans.Customers seeking a consumer loan will have to provide guarantees totaling 133 percent of the loan value with an initial maturity of maximum five years, a substantial decrease from the current maximum rate of 20 years. These provisions do not apply to medical or student loans.
For housing loans, the debtor must come up with a deposit of 15 percent of the value of the property for financing in the local currency (RON), which increases to 30 percent for loans in Euro and 40 percent for financing in other foreign currencies.
The maximum level of indebtedness will also be a factor in the following: the exchange rate shock: 35.5 percent for EUR, 52.6 percent for CHF and 40.9 percent for USD; the 0.6 percent shock on all currencies for interest rates and 6 percent for the revenue shock. At the end of July, due payments for loans totaled RON 10.8 billion, representing 7.85 percent of all loans granted in foreign currencies. However, due payments in the local currency (RON) are in the same range, reaching RON 8.9 billion after the first seven months.
At the end of July, banks had granted loans in foreign currencies totaling RON 137.7 billion, 72 percent more than loans given in the local currency, which reached RON 80 billion, according to data from the central bank. Financial institutions have granted retail loans in foreign currency worth RON 67.7 billion, out of which RON 37.5 billion represents consumer loans, and RON 28.9 billion home loans.