Bankers Keep Pressure On Old Clients With 6% Interest Margins

10.04.2011 By Ciprian Botea

Bankers are keeping up pressure on clients holding loans as these are the main income source given the low sales of new loans.

The gap between the average interest rates for leu-denominated loans and deposits reached 5.7% at the end of August, slightly higher than in the previous month, when it had slid to 5.5%, BNR data shows.

The interest margin shrank, though, by more than a percentage point from a year ago, when a peak of 6.8% had been reached. However, there is still a significant different from 2009, though the leu benchmark rate fell meanwhile and banks have smaller costs related to minimum mandatory reserves.

"Banks are not very eager to acquire new clients, which is reflected in the declining lending activities, and in this context they are trying to raise their profit margins on already existent loan portfolios. The level of minimum mandatory reserves also plays an important role," believes Radu Craciun, an investment manager with Eureko Pensii.

The gap between interest rates for loans and those for deposits had reached a 3.5% low in early 2009. Subsequently, as the level of liquidity on the market rose, deposit interests registered ever more visible declines, while loans got cheaper at a much slower pace, which allowed for leu gain margins to rise to almost 7%.

The situation was much more stable in the case of the euro-denominated loan and deposit portfolio, where banks' gain margin maintained around 3.3-3.5% over the past year. The gap between interests for euro loans and euro deposits reached 3.51% in late August, from 3.26% at the beginning of the year.

In the case of new loans, bank's gain margins are below last year's level as bankers do not rely very much on incomes generated from new clients, given their low number.

While they are complaining about the lack of new clients to whom they can sell loans, by making loans more expensive bankers are showing they are still afraid to fund any client that submits an application.

(English version by Catalina Apostoiu)