Provisions hardly cover the pace of bad loans

Banks in July set up provisions worth almost 764m RON (182m euros) to cover the potential losses generated by loan portfolio deterioration, but the degree of coverage for loans overdue by more than 60 days is still dwindling. In July, provisions set up by banks covered 107% of doubtful and loss loans, from 118% in the previous month and 117% in late 2008, according to NBR data. At book value, loans overdue by more than 60 days are worth double the value of provisions. The rising unemployment and uncertainty about the exchange rate progression are making bankers prepare for tougher times. “We are likely to further see bad loans rise considerably, generating a bigger provisioning need (…),” believes Nicolaie Chidesciuc, chief economist with ING Bank. Provisions in July rose by 6.3% month-on-month, to 12.1bn RON (2.9bn euros), while doubtful and loss loans advanced by over 7%.