Lending Interest Rates Show Signs Of Decline

Gabriel NiŢulescu

President Traian Basescu recently complained that the interest rates charged by commercial banks for loans were too high. However, there are signs that the interest rates on loans could decrease in the near future. The first step is that interest rates offered on deposits are decreasing already.

For example, Banca Comerciala Romana (BCR) yesterday reduced the interest rates paid on fixed-term deposits and savings account by up to 1.75 percentage points for both individual and business customers. The new rates for RON-denominated deposits do not exceed 12%. Earlier this month, Banca Comerciala Carpatica reduced interest rates on deposits by up to one percentage points.

"The interest rates on deposits have decreased already. The lending rates will follow. Towards the end of the year, the interest rates on deposits will be expressed in one digit and will be very close to the monetary policy rate, as they should be," said Radu Gratian Ghetea, President of the Romanian Banking Association.

• Interbank market gives further signs of a forthcoming rate drop

On 6 May, the National Bank of Romania lowered the monetary policy rate by 0.5 percentage points to 9.5%. The decision took the market by surprise to a certain extent, as most analysts were expecting a smaller cut, by 0.25 percentage points. Nevertheless, the measure encouraged a decrease in the interest rates on the interbank market towards the monetary policy rate.

In fact, shortly after the Central Bank cut the key rate, ROBOR 1M decreased from 12% at the end of April to approximately 10% currently. Moreover, short-term interest rates fluctuated around 9.5%. "The interbank market improved its liquidity following the steps taken by the Central Banks in the last few weeks. Such measures include the decrease in the key rate and the decrease in the minimum mandatory reserves. Eventually, this leads to a decrease in the interest rates offered for savings," said Florian Dangl, Executive Manager of the Balance Management Directorate of BCR.

In turn, Ionut Dumitru, Chief Economist of Raiffeisen Bank, said: "Compared to the period just before the conclusion of the agreement with the IMF, the interest rates on the interbank market (ROBOR 1M) have decreased by approximately 6 percentage points to roughly 10%. We expect that the next meeting of the Board of the Central Bank on 30 June will again reduce the key rate by 0.5 percentage points, which will lead to a reduction in the interest rates for deposits and loans."

Some of the banks have already announced reductions of the interest rate for loans. Effective as of 1 June 2009, ProCredit Bank has reduced the rates for all types of loans to small- and medium-sized enterprises by 1 to 2.5 percentage points. The rates were also reduced for farming loans by 1.5 to 2.5 percentage points. UniCredit Tiriac Bank in May lowered their rates on loans by up to 3 percentage points.