Consumer loans in Moldova hit new record in July as interest rates fall

Consumer loans in Moldova hit new record in July as interest rates fall
By Iulian Ernst in Bucharest August 22, 2016

New consumer loans extended by Moldovan banks in July increased by 54% y/y to hit a new record of MDL313.8mn (€14.3mn) in July, the central bank reported. The average interest rate charged on local currency consumer loans decreased to 14.18% after reaching 17.01% in February.

In January-July, the consumer loans extended by banks to households, denominated in local currency, roughly doubled y/y to MDL1.43bn. This was around one fifth of the total new loans extended by Moldovan banks in local currency for the period.

The new loans extended by Moldovan banks in local currency increased by 78.6% y/y to MDL7.5bn (5.9% of last year’s GDP) in January-July. The average interest rate decreased to 14% in July after hitting the maximum level of slightly above 16% in January. However, the lending terms remain particularly restrictive.

Foreign currency lending remains significant, at MDL5.4bn in January-July. The interest charged on forex loans decreased to 5.96% in July, though it remains high. For comparison, banks in Romania charge 2.97% (versus 5.93% in Moldova) interest on euro denominated loans to companies and 4.45% to households (versus 7.34% in Moldova). However, a significant part of the forex loans in Moldova are denominated in US dollars and higher dollar interest rates globally might explain part of the gap.

Interest rates are still very high in Moldova as a result of the central bank’s tight monetary policy during the past year, aimed at fighting the inflationary pressures of the exchange rate correction in early 2015. This prevents the development of the mortgage loan segment. New mortgage loans extended in local currency in July were only MDL53.55mn, and the average interest rate was 11.96%. In January-July, the mortgage loans extended in local currency increased, however, by 69% y/y to MDL210.7mn.

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