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BNR survey:Roughly 49 pct of Romania's banks expect lending standards to tighten for all loan types

Agerpres
BNR

A considerable proportion of Romania's banks expect lending standards to tighten for all types of loans, with consumer loans and short-term loans to SMEs being the most affected, reveals a survey conducted by the National Bank of Romania (BNR) on lending to non-financial companies and to households.

"Against the background of the COVID-19 pandemic that gripped Romania starting March 2020, the credit market has gone through substantial changes in 2020 Q1. Expectations for Q2 2020 see these trends continuing, yet in a far more pronounced manner. In Q1 2020, a moderate share of credit institutions have tightened their lending standards, while demand for loans receded. For Q2 2020, a significant number of banks anticipate a tightening of lending standards for all types of financing, particularly for consumer loans to households and short-term loans to SMEs. Demand for loans is expected to shrink in Q2 as well, with a high proportion of the banks indicating this trend in the case of household demand (for both types of financing) and the SMEs' demand for long-term loans," reads the BNR report.

In the sector of non-financial companies, lending standards have tightened in Q1 for both SMEs and large companies, on all maturities. For Q2, credit institutions (more than 54 percent thereof) anticipate a certain tightening of lending standards and of the credit terms and conditions for loan agreements or credit lines for non-financial companies.

Credit terms and conditions have seen mixed developments in Q1 2020, as part of the credit terms remained unchanged, the spread between the average lending rate and the IRCC/ROBOR has eased, while requirements for the maximum loan amount, the premium for riskier loans and the maximum maturity have grown stricter.

Loan demand from non-financial corporations has decreased overall in Q1. A breakdown shows that developments were similar to those at aggregate level, except for short-term loans sought by the large companies, where a small proportion of the banks (1 percent) reported a rise in demand for this type of financing. For Q2 the banks anticipate a decline in corporate loan demand, from SMEs in particular.

"In Q1, the share of credit institutions that consider that the company-related credit risk has increased both overall and by economic activities. The breakdown by economic activities shows that banks perceive the credit risk to be on an upward trend for all sectors. To a moderate proportion (10 percent), the banks reported an increase in the loan rejection rate in Q1 2020," the BNR document states.

As far as lending to households is concerned, a considerable part of the credit institutions report tighter lending standards for both housing loans or land purchase loans (12.1 percent) and consumer loans (21.4 percent). For Q2 2020, banks expect lending standards to grow even tighter (a net percentage of 44.9 for housing loans and 59.9 for consumer loans).

As for the credit terms and conditions for housing loans, the credit institutions reported stricter conditions regarding the ratio of the maximum monthly debt service to the monthly income (net percentage: 4.1 percent). Lending conditions for consumer loans have grown tighter due to requirements regarding the indebtedness level (net percentage: 17.7) and the maximum loan amount (net percentage: 17.7).

In Q1, credit institutions reported a moderate drop in demand for both types of loans to households (a net percentage of -30 percent for housing loans and of -42 percent for consumer loans). The banks' expectations for Q2 indicate a contraction in loan demand for both housing loans and land purchase loans (net percentage: -88 percent) and consumer loans (net percentage: -86 percent).

Banks also reported an increase in the loan rejection rate in Q1 for both types of loans to households (net percentage of 20.7 for housing loans and of 13.9 percent for consumer loans).

The survey is conducted by BNR quarterly in January, April, July and October, based on a questionnaire (released as part of the May 2008 analysis) which is sent to the top 10 banks according to their market share in terms of corporate and retail loans. These institutions account for approximately 80 percent of the loan stock.

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