Non-government lending surge triggers more overdue credits

If there were ever any doubts about the need for the central bank’s desperate efforts to cap, one way or another, the frantic growth pace of non-government lending, these doubts have certainly been dispelled by the nine-month banking figures. At this point, it has become obvious that overdue loans are gaining a strong foothold in the banks’ portfolios.

In September alone, the total volume of loans granted by commercial banks and deemed as overdue went up 13%, to almost 4,750bn ROL (some 123m euros). And the increase follows another 12-13% jump in the volume of overdue loans, back in August.

Although bankers almost never admit they are encountering difficulties in retrieving the granted loans, monthly figures show that overdue credits are gaining ground.

Short-term ROL loans deemed as overdue amounted to 1,860 billion ROL at the end of September, up 7.3% since August, whereas overdue medium- and long-term loans climbed 4%, up to 233 billion ROL.

The fiercer competition between banks and, implicitly, the battle over market shares has pushed the relaxation of lending criteria so far that everything is eventually turning against the banks.

As compared to September 2002, the volume of short-term loans in the domestic currency deemed as overdue has climbed over 40%, whereas overdue medium- and long-term financing has seen a 300% surge. It is true, however, that medium- and long-term funding could be seldom found in the banks’ portfolio until this year. This explains the unprecedented surge in the number of overdue medium- and long-term credits.

The evolution of currency loans is just as interesting: overdue short-term credits went up 14.65% in September, whereas the volume of medium- and long-term currency loans has soared – the growth exceeded 51%. It is true that, in September, the ROL’s depreciation against the euro, deemed as the benchmark currency for loans, was 2.5 percent, but this month’s depreciation was not among this year’s record-highs.

The problem is all the more worrying as lending is still growing at a very fast pace and the banks are likely to become engaged in an even fiercer competition.

Still, the loans for the purchase of durable goods posted the biggest growth – their volume exceeded 500 million euros, triple compared to the end of last year’s first quarter.

Although at first sight they seem thrilled with the lending trends, central bank officials have also warned against the hidden risks of this evolution.
oana.nuta@zf.ro