Surge in lending erodes savings power, worries International Monetary Fund

The rapid surge in lending is visibly eating away at savings. Rates no longer incense people to keep their money in the banks, whereas the hunger for loans is engulfing the savings, as down payments must be made and instalments must be paid. Which erodes the savings power.

Whereas people used to save money for two years before buying some home appliance, for instance, now the problem can be immediately dealt with by applying for a consumer credit.

Although population credits account for only 9% of the non-government lending, credits to natural persons have really picked up the pace lately, as they contributed more than one third to the total increase in lending.

Credits go up, savings go down. Loans in the domestic currency have climbed more than 9.3% in one month.

This gap can widen in time, which could affect the funding resources needed to meet the loan demand. Foreign currency lines of credit could be one solution.

“Commercial bankers don’t seem to understand that, once the capital account is liberalised, the line between resident and non-resident deposits vanishes. This cancels the argument related to the domestic lending expansion based on resident deposits. This worries the IMF,” says Daniel Daianu, former Finance minister and head economist of the National Bank of Romania.

The drop of savings in ROL is balanced by the increase of foreign currency deposits.

“The growth of foreign currency deposits suggests the domestic currency has lost some of its appeal. On the other hand, where the banking system is concerned, such a trend, joined by the significant increase of ROL lending, helps even out the discrepancy between the ROL and foreign currency structure of assets and passives, which is good in terms of the foreign currency risk taken by the banks,” says Radu Craciun, senior analyst with ABN Amro Bank.

The IMF is not thrilled with the rapid increase in lending. A team of IMF experts is in talks with National Bank officials these days, to assess risks and agree on several safety measures. The National Bank of Romania supports lending, which Romania needs, considering it merely accounts for 13% of the GDP.

In order to put a damper on the surge in lending, the criteria for loan granting will become stricter, as the applicants will need to prove they earn rather big salaries and down payments will increase. Not to mention that a rate hike would hurt the entire market, even those that have no difficulties paying their loans back under the current conditions.

An increase in the total lending implicitly entails more difficult loans, most of them granted to the population. “The increasing number of unpaid loans by the natural persons raises doubts as to the possibility of maintaining the current growth pace of lending to the population,” Radu Craciun comments.

On the other hand, the number of unpaid foreign currency loans has not increased significantly, despite concern regarding the frequent exchange rate fluctuations.

razvan.voican@zf.ro