Small credits the cause of large overdue debts

Constantly downplayed due to the small amounts involved, the increase in overdue payments on loans taken out by individuals is forcing banks to take measures.

Alpha Bank, for instance, is currently conducting a campaign to recruit “bad debt officers.” The most important requirement is experience in a department for the recovery of non-performing loans or with an organisation specialised in this line of business.

Sensing that taking out insurance against the risk of default is no longer enough, banks are developing their own debt collection structures and consolidating existing ones.

Companies specialising in debt collection have emerged on the market and outsourcing the costs of this activity is now an option for banks.

Bankers are hoping, once the Credit Bureau becomes operational and the supervision of the NBR Central Banking Risk Office is expanded (by lowering minimum exposure from 200 to 100 million ROL), the growth in overdue debt repayments will slow down.

This is based on the general belief that individual debtors are the best payers of all, though in fact the lack of a banking culture means they borrow beyond means.

Individual customer debts, overdue for more than 30 days and reported to Central Banking Risk Office (CBR), amounted to nearly 612bn ROL (16.1 million euros) by the end of November 2004. This amount only includes overdue payments on the loans below 200 million ROL, which make up the so-called consumer credit category and are usually for the purchasing of durable goods. Compared with August, when the CBR first started collecting data on overdue consumer credits, loans that had not been paid even 30 days after the deadline had risen by 61%. CBR data show the number of people with overdue debts increased 28% in this period to a total of 132,622. The number of overdue loans is 167,235 (up 35% from August), which shows there are some debtors who owe money to several banks. The Credit Bureau, an institution established by commercial banks to manage debtor information, has similar statistics and Bureau officials recently confirmed that the number of people with overdue debts to at least two banks is in the region of thousands.

These data also show that the largest overdue debts are for ROL-denominated loans, which total 541bn ROL (14.2 million euros). Overdue euro-denominated credits amount to 48.8bn ROL (1.3 million euros) and debts in dollars were worth 21.6bn ROL (0.6 million euros). Loans in euros account for more than 46% of total credits granted, indicating that debtors are more careful with repayment of foreign currency loans, made easier by the nominal appreciation of the ROL against the euro and the dollar that has cut the cost of these loans.

The bulk of the overdue debts are older than 90 days and total 261bn ROL (6.8 million euros). X-rated credits (those removed from balance sheets), valued at 186bn ROL (4.9 million euros), come next, and debts overdue for between 31 and 60 days account for 96bn ROL (2.5 million euros).

So far, the rapid growth in overdue debt has not affected the balance sheets of banks in any significant way. And the total volume of overdue debts against total credits is still low at about 0.56%. On the other hand, banks oblige their clients to take out insurance against the risk of default so that overdue debts are paid by the insurer, which can get its money back later by selling the goods pledged as collateral.
liviu.chiru@zf.ro