CNSM report: Watch out for Prima Casa guvernamental program

The Prima Casa program has accumulated an impressive loan stock of RON 31.9 billion, around 26 percent of total loans and it has already a systemic dimension, according to the annual report for 2017 of National Committee for Macro-prudential Supervision (CNSM).

The report said that along to the systemic dimension of the loan stock, there is another systemic dimension in terms of mortgage credit flow. The program accounted for 64 percent of what state granted in 2016 and 58 percent of that granted in 2017.

More than that, it appeared a significant rise in real estate prices and the small advance needed, may generate vulnerabilities in the event of future adjustments. Moreover, the program has become pro-cyclical in recent years, stimulating lending in a segment that now has an important dynamics.

The systemic nature of the program may create problems in terms of financial stability, notably by overemphasizing housing demand, with already worrying concerns about recent housing price developments, rising state exposure to the banking sector as opposed to trends observed at European level in terms of prudential regulation.

At present, the value of the guarantees is about RON 21.5 billion, the over-indebtedness of the debtors, as the indebtedness of the people who contracted Prima Casa loans is high even under the conditions of a low interest rates and revenue growth, and these loans have a high sensitivity to interest rate changes.

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The danger of growing interests

Any growth of the interest might affect a sum of the buyers, in particular those with earnings between minimum and medium salary, by rising the indebtedness to unsustainable levels.

For now, according to BNR, clients who have accessed in the last year a Prima Casa loan have on average a 44 percent level of debt, which means that almost half of their monthly income goes to pay the debt to the bank. On the other hand, the degree of indebtedness of clients who contracted a Prima Casa loan in previous years is lower by 5 percentage points.

In the case of standard mortgage loans, the degree of indebtedness is 42 percent, BNR says. 

Finally, the report states that, in this context, it is necessary to better target the Prima Casa program from a social point of view, by revising access conditions, while maintaining a sustainable indebtedness rate.