Overdue loans drop to five-year low in Romania

By Iulian Ernst in Bucharest May 30, 2016

The stock of loans overdue by at least one day in Romania shrank by 18% y/y to RON19.64bn (€4.39bn) at the end of April, the central bank has announced. The share of overdue loans in total loans dropped by 2.3pp to 9%.

Both in absolute value and as a share of total loans, the volume of overdue loans has hit a five-year minimum; these are the lowest levels since June 2011 for the absolute value of overdue loans, and May 2011 for overdue loans as a share of total loans. Payment discipline gradually deteriorated between 2009 and 2013, and the trend reversed afterwards, once the central bank compelled bankers to tackle the issue of non-performing loans (NPLs).

The highest level of overdue loans was reached around the end of 2013 and in early 2014, when customers delayed payments on more than €7.6bn - or 15.4% of total loans - at the end of November 2013. Payment discipline has constantly improved over the past two years as NPLs have been taken out of banks’ balance sheets.

The improvement in the overdue loans to total loans ratio was mainly due to lower overdue loans, but the 3.1% y/y rise in the stock of total loans due to the generation of new loans (mainly local currency mortgage loans) has also contributed.

The ratio decreased by 2.6pp to 7.6% for local currency loans, where the generation of new loans was stronger. By contrast, the ratio decreased by only 1.6pp to 10.6% for foreign currency loans, where debtors under financial pressure were waiting for the debt discharge bill to be endorsed to allow them to terminate their contracts under more favourable terms.

Overdue loans refer only to the principal and exclude off balance sheet items. Falling under this heading are loans which, on the last working day of the month for which the report was made, are overdue by at least one day.   

The central bank also confirmed it has revised the NPL ratio for the end of 2015 at 13.51% from 13.61 under the first estimate. The NPL ratio remained virtually constant at 13.52% at the end of March, while the stock of loans edged down marginally by 0.5% ytd.