High euro costs could lead to more expensive RON loans

An increase in interest rates for euros is being considered by several banks in order to maintain profitability now that refinancing costs are higher. In addition, bankers also anticipate a rise in the price of RON loans, especially if the National Bank (NBR) increases the interest rate to counter inflationary pressures. Moreover, even the parent banks have started to make funding for their Romanian branches more expensive, or in some cases even scale it down.
“Unfortunately, I don’t think that loans in euros will be the only ones affected by a rate increase soon, but also loans in RON. I am sure there will be difficult situations especially for those who have got themselves into debt up to their maximum capacity, or for those who took advantage of the lack of financial background checks for positive (credit history) information and borrowed above the 40% cap,” Cristian Nae, product manager with the Retail Division of OTP Bank told ZIARUL FINANCIAR.
Catalin Parvu, Piraeus Bank’s general manager for retail banking and operations, believes a “slight increase of 1% on the costs of a loan” could be taken into account for the entire market, but does not feel that it would have much of a negative impact on the clients’ financial situations.
“Considering financing in euros for the banking market is largely provided by the parent banks of the subsidiaries in Romania, and that we are witnessing an increase in the price of loans, it is obvious that this will have repercussions for the end beneficiaries of loans,” Parvu says.
Sergiu Oprescu, the chief executive of Alpha Bank says that the interest rate for loans offered by the bank is indexed at an internationally traded rate and sees no reason to modify the margins added to that particular rate.
“If the EURIBOR (the international euro reference rate) rises, considering the delayed moment at which the bank acts, the client actually stands to gain,” says Oprescu. After all, he believes there will not be any talk of “a wave of price hikes” for euro loans on the market.
Piraeus Bank is now analysing the required steps to maintain profitability. “Even though we will have loan cost adjustments, they will not be significant as far as the client is concerned,” says Catalin Parvu, head of retail with Piraeus.
He believes a potential relaxation in lending costs is very much determined by a potential cut in the interest rate by the European Central Bank, and also by the NBR’s policy.
OTP in turn is looking into its financing costs. “The main issue here is that the streams of funding in foreign currency previously came from parent banks at very low costs, while lately, and especially over the coming period, we will see higher financing costs, as higher and higher margins are added to the reference rate, or a significant reduction in the lines of credit in some cases,” says Cristian Nae, who does not anticipate a significant deterioration of the loan portfolios either.