Lending to resume only when banks seek profit – c-bank official.

By bne IntelliNews June 25, 2014

Bank lending will take off only when the banks seek profit – and not necessarily in relation to their balance sheets being cleaned of bad loans – vice-governor of Romanian central bank, Bogdan Olteanu, said, quoted by Agerpres. The statement comes after the central bank initiated a four-step plan to encourage banks to take bad loans fully provisioned and with no recovery outlook out of their books. The move is expected to slash the country’s staggering 22.3% NPL ratio*by some 10pps, central bank expects.

Banks came under public criticism after the 2008/09 credit crunch on accusations, sporadically admitted by bank officials, that high loan interest rates are aimed at covering the cost of NPL – thus not reflecting the risk of future loans but rather of past loans.

Central bank official’s statement also comes at a time when the stock of bank loans picks up – maintaining however a negative annual performance. Furthermore, the stock of healthy [total minus bad] loans is shrinking even faster since the volume of bad loans keeps growing. As of end-march, the stock of loans edged down by 2.7% y/y, in euros -- while the stock of healthy loans shrank by 5.7% y/y. Healthy loans were only 70% of the total bank loans.

* as of end-March 2014

 

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