Banks Promote Loans In Lei For Lack Of A Better Option

12.23.2011 By Ciprian Botea

Threatened with the loss of foreign funding, bankers have decided to launch more aggressive offers for loans in lei to persuade customers to borrow in local currency after the central bank (BNR) restricted lending in foreign currency.

This is a radical change compared with the past few years, when bankers had aggressively promoted loans in foreign currency, including those in exotic currencies because of lower costs.

"There will certainly be a shift in preferences towards lending in lei. There are leu resources but also potential for a cut in the interest of such loans. Each bank has it own restrictions and I think there will be banks that will continue lending and banks that will have to reduce their volume of operations," comments Ionut Dumitru, Raiffeisen Bank's chief economist.

ING cut three percent of its interest margin on leu-denominated mortgage loans, to 1.5% a year. The nominal rate now stands at 7.75% per annum and the annual percentage rate of a loan is 8.5% per annum. The annual percentage rate for a leu-denominated mortgage loan is 9.3% per annum on the market.

Portuguese-held Millennium, too, is trying to revive sales of loans in lei and is offering consumer loans denominated in this currency again. These loans are sold at a 14.5% per annum fixed interest rate. Greek-held Banca Romaneasca is trying to encourage refinancing in lei with a ten-year loan with real estate collateral.

BNR has recently enacted harsher rules for lending in foreign currency and the customers who want to buy a home using a mortgage loan have to come up with one quarter of the amount they need. When it comes to consumer loans, banks have to require customers to come up with collateral worth 133% of the loan value.

The gap between leu and foreign currency interest rates remains significant and very few banks dare operate aggressive cuts in one move. Others have expanded their leu loan portfolio or reintroduced products they had discontinued several years ago.

The average interest rate for a leu loan currently amounts to 12.8% per annum, while the interest of a euro loan stands at 5.8% a year, according to BNR data. At a constant exchange rate, it would take a seven percent decline in leu loan interests for a customer to pay the same installment as for a euro loan.

(English version by Loredana Fratila-Cristescu)