The flow of new corporate loans, denominated in local currency, extended during 2021 was 40% above pre-crisis (2019) and the stock of corporate loans at the end of 2021 increased by over one third (+36%) compared to December 2019, according to the latest data released by the National Bank of Romania (BNR).
Thus, Romanian banks extended RON89.8bn (€18bn) new local currency loans during 2021 (+31% y/y and +35% versus 2019), out of which RON40.4bn new corporate loans: +20% y/y and an impressive 40% up versus 2019.
The stock of local denominated corporate bank loans rose by 26% y/y and by 36% versus December 2019, to RON93.2bn at the end of 2021.
But this increase, driven by the government’s Covid-19 support schemes, is not without risks, the OECD warned in its Economic Survey published on January 28, quoting data from the BNR.
While private indebtedness is still low in Romania, some firms and households face a significant problem of solvency, the OECD said.
Total private debts levels – the stock of loans issued to households and non-financial corporations – stood at 47.8% of GDP in 2020, well below the OECD average. Prudential measures adopted by the authorities, such as the introduction of the cap on the debt-service-to-income (DSTI) ratio in 2019, helped to contain debt in the private sector. Nonetheless, banks’ exposure to highly indebted clients is high.
For instance, 55% of loans in the non-financial corporations' sector are taken by highly indebted firms (with a debt-to-asset ratio of over 75%, according to the BNR).
Some firms are also vulnerable to currency and refinancing risks, which can add to difficulties in their debt repayments: external debt accounts for 54% of the total and debts with a maturity of up to one year account for 41% of the total in the non-financial corporations' sector. This calls for keeping monitoring financial stability risks and ensuring sufficient capital adequacy, liquidity and loss provisions.
Moreover, debt restructuring should be facilitated by reforming insolvency regimes through, for instance, the introduction of out-of-court mechanisms, OECD experts concluded.
Over the longer term, policy should support financial institutions to adopt business models generating higher value-added, OECD experts also recommended. In their view, the policy can strengthen banks’ capacity to assess the creditworthiness of businesses, for instance by extending the coverage of the Central Credit Registry to include information on debt collection, in particular, loans sold to debt recovery companies. Moreover, the creditors’ rights should be ensured in effective terms by enhancing the insolvency regime. This will encourage financial institutions to take appropriate risks, which can result in a better allocation of capital across firms.