Higher share of troubled loans in banks' portfolios

Banks set aside almost 90 million euros in April in order to cover the potential losses arising from the deterioration of the loans granted. The economy slowdown and the prospects of rising unemployment are scaring the bankers.
The quality of the loans granted by banks continues to worsen, and provisions can barely keep up, the latest NBR data reveal. Prospects are gloomy, because the rising unemployment effect will show the next few months, rendering more and more people unable to repay their loans.
The share of past due loans by more than sixty days – rated as “doubtful” and “loss” according to the regulations of the central bank – reached a new peak of the last few years in April, 5% of the total portfolio. A year ago, this share stood at 2.2%.
At the same time provisions set aside by banks to offset the potential losses from loans continued to go up, though the monthly pace went down to 3.6% in April compared with 6% in March or 15% in January. The volume of loans reached 10.6 billion RON (2.5 billion euros) in April.
Analysts are pessimistic and believe that the quality of loan portfolios will continue to worsen.
“Early this year the higher increases in provisions were caused by the foreign currency loan portfolio, as a result of the fast depreciation of the RON. Even though the RON is more stable now, we will still see provisions go up slowly, as a result of the contraction of the economy. Unemployment is still relatively low, but has high growth potential and will only peak in 2010, and non-performing loans will follow this trend,” says Nicolaie Alexandru-Chidesciuc, chief economist of ING Bank. He sees unemployment rise to more than 10% in 2010 compared with 5.8% in May.
The rapid growth of provisions in the first few months alarmed the NBR, which started an investigation suspecting some banks had postponed making provisions last year.