From June 2022, against the background of rising interest rates and a decrease in the purchasing power of the population, the ability to pay contributions in banks has decreased, according to the document of the National Bank.

The impact of rising interest rates resulted in a rate/client increase of almost 10% in the case of consumer loans, given the low maturity of the portfolio (4.9 years compared to 21 years in the case of mortgage loans). ), as well as a high weight of fixed interest loans.

The increase in non-performing loans in the case of consumer loans was mainly due to an increase in the number of defaulters, while the value of over 90 days past due was unchanged. The overall default rate increased slightly between June 2022 and March 2023, with the largest increase recorded in consumer loans, followed by mortgage loans.

In the case of mortgage loans, a differentiated evolution can be observed depending on the currency. The rate of the average client with a mortgage loan in lei increased by 36% in March 2023 (compared to the rate he paid in March 2022). For comparison, the rate increase for a client with a mortgage in foreign currency was 19%, taking into account the stable exchange rate and the smaller amplitude of the change in the base rate for these contracts.

In the next period, no additional increase in rates for mortgage loans in lei is expected, while in the case of loans denominated in euros, the upward trajectory will continue against the background of a tightening of monetary policy at the European level.

Borrowers feel the impact of the increase in interest rates differently depending on the type of interest, the interest rate at the time of granting, according to the macroprudential regime, the National Bank also states.

Romanians who took out loans between 2015 and 2017, when the ROBOR 3M rate was 1.1%, have experienced a rate increase of around 50% in recent months as a result of the increase in interbank interest rates. That’s right, real incomes have also increased: from 45% to 80% since receiving the grant.

On the other hand, a large number of bank clients with a debt ratio of more than 45% at the time of granting the loan (about half of them) may be a potential problem. This is also reflected in the relatively high default rate of this loan portfolio (3.7%), despite the positive dynamics of real incomes.

In addition, as of March 2023, only 16% of these loans had a fixed interest rate, so the recent increases have spread more to these borrowers. The decrease in the 3M ROBOR index, starting in November 2022, will reduce the pressure on borrowers’ solvency (The decrease in the monthly average of the 3M ROBOR from 8.2% in November 2023 to 6.9% in March 2023 means a decrease in the monthly service to 11% per loan with a remaining maturity of 20 years)

“Recent events require careful monitoring of the portfolio of mortgage loans provided to the population”

Loans granted in the period 2018-2020 experienced an increase in rates compared to the time of granting by approximately 30-35%, which was partially compensated by the change in real incomes. were also low, they have a significant weight in the portfolio of mortgage loans (27%). Prudent credit standards at the time of grant with regard to minimum down payment and leverage limits helped maintain a lower overall nonperforming rate for the fund’s portfolio (0.7% compared to 1.6%). Recent events require high caution and careful monitoring of the portfolio of mortgage loans granted to the population.

Given that many mortgages are taken out by people with above-average incomes, this leads to lower risk given that these people:

• i) spend a smaller share of income on food and basic services, so they can absorb price increases without reducing consumption,

• ii) they have savings that allow them to cover possible shortfalls in temporary cash flows, and iii) their incomes have a low degree of volatility depending on the economic cycle. On the other hand, numerous studies have shown that the risk of unemployment is higher for people with low incomes in the event of a recession. In this sense, future developments in the labor market will be very important, the current low level of unemployment is an important indicator of maintaining the solvency of debtors.

Romanians, who deferred their bids based on the previous moratorium (OG 37/2020), continue to have a high level of importance for portfolio quality, contributing 22% of the value of non-performing exposures.

Compared to those with outstanding loans in March 2020, BNR estimates that customers who took advantage of the suspension of payments have a default rate of 11% compared to 3% for those who did not take advantage.