IMF experts arrive in Romania to put a damper on credit growth

The trade deficit getting out of hand, worsened by massive imports financed by credits and the inflation inflammation, these are the biggest risks of the lending engines operating in full gear ever since the beginning of the year.

The International Monetary Fund experts are coming to Bucharest this week to discuss, among others, the steps suggested by the authorities in order to contain the lending rise and to cover the negative effects caused by the lending picking up speed. The higher than expected speed is one of the main slippages from the mid-year targets set in the latest supplementary memorandum endorsed by the Fund’s Board in May.

More than two billion dollars. That is how much more the banks lent to clients compared to last year, so that their portfolio has now come to total over $6.5bn. #leadend#

It is not the value that is impressive, because the starting base is small, anyway, but the growth speed: 52% for the ROL-denominated non-governmental lending in a year and 14% for the foreign currency-denominated lending. The growth of the lending in ROL in real terms was of 8.8% in May alone, compared with May 2002.

Furthermore, the foreign currency-denominated lending keeps accounting for the largest share in the total, which makes debtors even more vulnerable to the frequent exchange rate fluctuations.

An important contribution to the increase of the ROL lending comes from the consumer credits and housing loans; even so, the level is still insignificant compared to the retail market potential.

As early as a month ago, National Bank of Romania (NBR) Governor Mugur Isarescu was saying the speed at which the non-governmental lending progressed could “make the skin” of every monetary specialist “creep.”

“The point here is how to increase lending without generating inflation and without accumulating non-performing credits. It is not easy, but it can be done,” the governor said.

The lending went up even faster in May. IMF is now coming to see how the central bank proposes to address the issue.

Inquired about the progress of meeting the preconditions in the latest supplementary memorandum, Finance minister Mihai Tanasescu first of all said there were “certain small problems related to the non-governmental lending, which pertain to the monetary policy of the central bank.”

The authorities were expecting the stricter credit provisioning regulation enforced as of January 2003 to help temper the increase in lending, which has not happened, though.