BNR’s decision to cut the bad debt provisions is a measure that came as no surprise to market watchers, as it would improve lenders’ liquidity, whereas it would fail to revive markets for consumer and small-business lending, specialists polled by Wall-Street say.
Lending market awaits for the new regulation
The central bank decided late last week to enable lenders to cut the provisions set aside to write off bad debts, namely for loans with 90-day default period or for loans subject to legal actions, by 25% of collaterals’ value.
“BNR’s measure was absolutely vital in current market conditions, as the 90-day loan default ratio skyrocketed in the past few months, triggering the growth of bad-debt provision spending among lenders and in the end, of costs of loans granted to clients”, said Melania Hancila, head of research and strategy department with Volksbank Romania, third largest bank in Romania by assets.
This regulation is designed to differentiate the non-secured loans from the secured loans. “Therefore, the banks will have the possibility to lower the bad debt provisions by 25% of the collaterals’ value, which will lead to a reduction of provisions for mortgage-backed credits” said Hancila. In other words, more liquidity for banks.
She added that the measure adopted by the central bank would improve banks’ profitability and implicitly profit tax, and would boost the liquidity in the banking market, meaning a revival of market for consumer and small-business lending.
“BNR’s decision is welcomed, given the recent sharp slowdown of lending. In the event of an ongoing loan default ratio, the banks would be forced to raise capital to write them off,” said Nicolaie Alexandru Chidesciuc, senior economist at ING Bank Romania.
National Bank of Romania made public on Friday last week the new regulation regarding the classification