Firms set new record for loan balance growth in lei
Firms have set a new record for loan balance growth in lei after the financial and economic crisis, in June. With interest rates expected to drop, the population is starting to show interest in mortgage loans again, which have had the most solid growth in balance since the fall of 2022, according to an analysis by Profit.ro.
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The long-awaited decrease in interest rates in lei seems to have also revived the demand for mortgage loans. And, for the demand to be eligible, it is also supported by the double-digit nominal increase in the average salary.
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With around 400 million lei (+0.4%), June brought the most significant
The Mortgage Balance Increased Significantly in September 2022
Last year was a particularly weak one for mortgage credit, with the balance decreasing for 7 consecutive months. However, starting from the middle of this spring, mortgage lending seems to be recovering, as confirmed by the solid growth in June.
Compared to June 2023, mortgage credit increased by 2% in June, up from 1.5% the previous month, despite most of last year being in the negative. The mortgage balance increase is solely driven by the component in lei (monthly increase of 0.6%, annual increase of 5.6%), which has reached 93.2 billion lei out of the total loan stock, accounting for 87%.
On the other hand, housing loans in foreign currency continue to decrease (-17% annually, with a balance of approximately 2.7 billion euros equivalent).
The Impact of Currency Restrictions on the Mortgage Market
Due to eligibility restrictions introduced after the financial crisis, new businesses are facing challenges in accessing foreign currency, leading to a decrease in foreign currency-denominated transactions.
The Decline of the Light Industry Sector
The light industry sector is experiencing a significant thinning out, with a recent announcement of new layoffs. Between 2008 and 2013, over 90% of mortgages were denominated in foreign currency, peaking at 96%.
Rising Interest Rates in the Mortgage Market
Interest rates on mortgages in the local currency, both new and existing, have doubled over the past year compared to the COVID-19 pandemic period. The annual average effective interest rate on new loans was 8.1% in May, down from 8.4% in May 2023, with the IRCC standing at around 6%, still at a high level.
BNR’s First Move
During the July meeting, the National Bank of Romania reduced the key interest rate by 0.25 percentage points to 6.75% per year, in response to inflation dropping below 5% annually. This immediately led to a decrease in the ROBOR and interbank transaction rates. Meanwhile, current debtors are… (complete the sentence).
Interest Rates and Market Movements
Consumers and potential home buyers may have to wait for a while until the market movements are reflected in the banks’ offers (the decrease in the IRCC will only be visible next year), although some banks have started to offer lower fixed interest rates for a few years.
Analysts’ Predictions for Interest Rates
Analysts do not expect significant interest rate movements from the National Bank of Romania this year, as it faces inflationary pressures from increasing demand (high wage growth, a tight labor market) and a high budget deficit from the government. Estimates suggest that the central bank could reduce interest rates by 0.5-1 percentage points this year.
Slight Slowdown in Consumer Spending
The balance of consumer loans continues to grow at a rapid pace (+1.7% monthly, 12.6% annually), reaching 71.6 billion lei, but with a slight slowdown compared to the previous three months – from an increase of 1.3-1.4 billion lei/month.
Growth in Consumer Credit Reaches Record Levels
In the past year, consumer credit in the amount of approximately 1.2 billion lei has seen a significant increase. This growth rate is the highest since the summer of 2009, when the statistical effects of the 2008 boom were still in place. Interest rates on consumer loans have decreased by around 2.5 percentage points in the last year, making them more affordable, while banks have relaxed lending standards in the first quarter of this year.
Consumer Spending Shows Mixed Results
Consumer spending saw a boost in 2024, but data in May was disappointing. The growth rate of retail sales slowed to 6.1% annually, down from 9.3% the previous month, partly due to an unfavorable base effect. Compared to April, sales decreased by 0.4%.
Overall, consumer credit has increased by about 1% in real terms over the past year, despite the challenging economic conditions. This positive trend reflects the confidence of both consumers and lenders in the market.
Romanian Credit Market Overview
In June, the volume of loans in Romanian currency increased by 4.5%. Adjusted for inflation, consumer credit balances rose by 7.3%, while housing credit balances decreased by 2.8%. It was a good month for business loans as well.
Positive Trend for Corporate Loans
Credit granted to non-financial corporations increased by 2.3% in June compared to May, reaching 198.1 billion lei. This was the highest monthly growth since September 2022, when the ROBOR rate exceeded 8% per year. The annual growth rate also accelerated from 4.7% to 5.8%, the best pace since February.
Job Opportunities for Students Without Baccalaureate
Over 6,000 job offers have already been released for students who did not pass the Baccalaureate exam. Many of these positions do not require qualifications, making them accessible to a wide range of applicants. The most attractive jobs and salaries offered are diverse, providing opportunities for various skill levels.
Recovery of National Currency Loans
In June, the interest of companies in loans in national currency increased by 4.2% compared to the previous month, the largest increase since the financial crisis. The balance in lei rose by 4.4 billion lei, reaching 108.6 billion lei.
Strong Growth in Loans in Foreign Currency
In the past month, loans in foreign currency have increased significantly, with an annual growth rate of 7.7%, the highest this year. The outstanding balance of loans taken by companies in foreign currency has also seen a slight increase compared to May, rising by 3.2% year-on-year to 18 billion euros equivalent.
Government Loans Reach 131 Billion Lei
The government has reached a total of 131 billion lei in loans after the first half of the year. For the whole year, a loan program of 181 billion lei has been announced. However, the growth rate of loans in foreign currency has slowed down significantly compared to 2022-2023, when it saw double-digit growth, including a peak of over 45% year-on-year.
