Bancherul - BANCI / ENGLISH / Romanian banks see demand for credits sinking in Q4, especially on the mortgage segment

Romanian banks expect a massive drop in credit demand for individuals in the last quarter of the year, especially for mortgage loans, despite estimates of cheaper lands and dwellings following worse lending conditions, a survey carried out by the central bank (BNR) shows.

Credit cards represent the sole lending products where banks expect a slight increase in demand in the last quarter, but a much smaller one compared to advances registered from July to September 2008.

Lenders estimate a dramatic plunge in demand for mortgage and consumer credits, despite the expected drop in prices for dwellings and land in the last quarter of the year. The shrinking demand is thought to stem from the much harsher lending norms imposed especially for mortgage loans, according to the survey.

Relaxed lending norms in Q3 led to increased demand for mortgage loans from the population, despite higher prices

Banks expected a significant drop in the real-estate credits for the third quarters, but these merely slipped after lenders maintained the same lending standards as in the second quarter of 2008, despite increasing prices for these types of credits.

The maximum degree of indebtedness used by banks to grant credits was on average 5 percentage points higher in the third quarter than in the previous one and stood at 55.3 percent. According to the BNR survey, banks still don't grant loans at the maximum admitted degree of indebtedness of 59.8 percent.

Non-guaranteed consumer credits reported hikes above expectations, despite tougher lending standards, underpinned by a significant rise in demand for credit cards.

Although banks harshened lending standards in the third quarter of 2008 for consumer loans, the terms of the credit contracts remained unmodified, the survey shows.

The new set of rules approved by the central lender on August 22 requires banks to carefully analyze the clients� payback capacity taking into account a level of incomes seen as eligible by customers, which cannot exceed more than 20 percent the previous year�s level.

Banks in Romania will require individual tax records of clients before approving a credit. Lenders will also establish a different maximum degree of indebtedness for each client, depending on the category of borrower, on the credit destination (mortgage, consumer etc.), on the type of credit (taking into account the currency, the interest rate, the guarantees) and also on the risks incurred by the lender, such as the exchange rate and the cost of credit.

Companies' demand for loans stagnates in Q3 and drops in Q4

Small to medium-sized companies (SMEs) asked for less credits during the third quarter, clogging the total demand for loans, which is expected to crash during the last three months of the year, as interests increase and crediting standards tighten, the BNR survey informed.

The crediting standards became harsher especially for SMEs, under the influence of the global economic background, the risk associated to the warranties and to the industry in which each company activates. The central bank's monetary policy decisions were also revised and the maximum threshold for the credit value was pushed down. The changes reflected banks' expectations and the evolution of the Eurozone.

The survey also shows that during the fourth quarter of the year the demand for long-run loans could drop on higher interests and that for short-run loans might stagnate.

The Eurozone holds the net demand for loans at a negative level, mainly due to the reduction in the number of mergers, acquisitions and reorganizations, as well as to less investments in fixed assets.

The riskiest sectors of the economy seem to be the construction sector, commerce and real estate transactions. Agriculture, on the other hand, is not viewed as risky by banks thanks to the rich crop and neither is the financial segment.