Why cut credit rates?

The Romanian banks still maintain a wide interest spread, that is a wide gap between active interests (credits) and passive interests (deposits). The banks last year operated a substantial rate cut for deposits, yet failed to do the same about credits. The latest available data (November) show the gap between the average interest on ROL credits and the one on deposits reaches 15 percentage points, that is between 30.3% and 14.5%. Moreover, the margin is even higher than the interest on deposits in some cases.
The banks pay 1-3.5% a year for dollars attracted and lend at rates above 8%-9% a year.
The rates for euro deposits are 2-4% a year, while credits come with more than 8% interest. Nearly 75% of the total credits in Romania are foreign currency denominated (dollars and euros). The euro-denominated credits account for a little more than 31% of the total, whilst the dollar-denominated credits account for 41%.
Individuals can hardly negotiate interests on loans. Things are somewhat different for companies, depending on their creditworthiness, their history with the bank in question and the financial strength. All these may result in better interests, which are below the market level. Therefore, some clients have not seen much of an interest cut yet.
“Interests on foreign currency credits have kept at about the same level, although having dropped for credits in ROL. Actually, every time we asked for lower interests from banks, they told us to work with ROL, as well, although the interest in this case was even worse. Even though interests on foreign currency-denominated credits could be theoretically cut, I don’t think it will happen, due the high pressures on the domestic currency. The trend now is to go for credits in foreign currency, but this might turn out to be the wrong choice, as it has happened before, when the euro was favoured over the dollar,” Ioana Teodorescu, International Leasing chairperson says.