Romanian banks expand loan portfolio by 4.2% y/y in June

Romanian banks expand loan portfolio by 4.2% y/y in June
By bne IntelliNews July 26, 2017

The stock of non-government loans in the portfolio of Romanian banks increased by 4.2% y/y at the end of June, accelerating from 1.2% at the end of last year to reach RON226.7bn (€49.8bn).

The improvement in bank lending, more visible in May-June, was driven by both retail consumer lending and corporate lending. The main engine of bank lending remains, as in the past years, the retail mortgage segment. 

The stock of retail mortgage loans increased by 10.6% to RON61.5bn at the end of June. The growth rate decelerated from 12.5% at the end of 2016, but remains in double-digits. 

The quality of the credit growth is debatable, given that the mortgage loans are extended under government-guaranteed programme Prima Casa. Nonetheless, banks tend to extend mortgage loans without government guarantees at similar interest rates to those guaranteed by government. 

Corporate lending has gradually gained momentum in the past months and the stock of loans to non-financial corporations increased by 1.9% y/y to RON103.6bn at the end of June. The corporate lending annual dynamics turned positive for the first time in April after years in negative figures. The stock of loans to non-financial corporations decreased by 2.5% p.a. in 2015-2016 after 7%-8% p.a. contraction rates in 2013-2014. The 1.9% ytd increase in H1 is far from reversing the plunge in the past years, but it confirms an encouraging pattern toward more corporate lending.

Consumer lending has also gained momentum, having increased by 2.3% y/y to RON53.2bn at the end of June after years of contraction. The decline in the stock of consumer loans in past years was partly the result of bad loans being writing off. Rising consumer lending reflects stronger consumer confidence and is particularly notable in the context of a sharp rise in households’ incomes that pushed up their sight deposits, which had already resulted in significant purchasing power. The low interest rate environment apparently stimulated further households’ propensity to consume above their budgets, but the expected reversal in the interest rates later this year and in 2018 will probably curb consumer lending and put pressure on households’ budgets.

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