Loan arrears rising from one month to the next. What is next in 2012?

The loan portfolio of banks is deteriorating from one month to the next, as layoffs, wage cuts and the exchange have been affecting the debtors' ability to repay their loans since 2009.

According to the Banking Risk Central, which records exposures of 20,000 lei or more (which represent 90.1% of the amount of loans granted), the overdue loan installments at the end of 2011 amounted to 20.3 billion lei (4.7 billion Euros), 35% higher than at the end of 2010.

In October, the unpaid loan installments amounted to 19.8 billion lei.

This year, the greatest danger comes from the international markets, with a possibly negative impact on the Romanian economy and, implicitly, on the quality of bank financing.

• Dragoş Cabat: The evolution of non-performing loans will be tied to that of the wages

The main reasons behind the increase in the number of non-performing loans, are the drop in wages, the layoffs and the stopping of the flow of money being sent home by Romanians working abroad, rather than the strengthening of the Euro against the leu, said Dragoş Cabat, managing partner at eFin.ro.

The first to default, starting with 2009, were those who borrowed in Euros, later followed by those who took loans denominated in lei, the analyst said, who went on to say that the situation has currently stabilized.

"The evolution of non-performing loans will depend on the evolution of wages. It is important if they stop rising or at least stop falling. I expect that wages will recover, meaning that there will no more non-performing loans", says Dragoş Cabat.

Another element which needs to be taken into account is the balance of the loans.

"The percentage of non-performing loans is calculated based on the volume of loans granted. The balance has been falling over these past few months, because people have been paying off some of their loans. Unless the balance begins to decrease - it has been happening over these past few months - there is no way we can see arrears decrease".

The analyst concludes that this year we may see a decrease in the volume of outstanding loans, and people who have loans denominated in Swiss Francs should sleep easier at night, because this currency should drop in the near future, after the resignation of the governor of the Bank of Switzerland.

• Ionuţ Dumitru, Raiffeisen Bank: The level of non-performing loans will continue to increase

The portfolio of bank loans will continue to deteriorate in the near future, if the inventory of loans will grow more slowly than non-performing loans, considers Ionuţ Dumitru, the chief economist of Raiffeisen Bank and the chairman of the Fiscal Council.

Furthermore, the deterioration of the Romanian economy in 2012 will pressure the quality of loan portfolios, considers Ionuţ Dumitru, who expects an economic growth of 0.5% in 2012. In his opinion, the international tensions will lead to a new recession in the Eurozone, with a negative impact on Romania. "We will see a deterioration of foreign demand, and on the internal market, a reduction in consumption and investment", the official of Raiffeisen Bank said.

The exchange rate will not have a major influence in the increase of the non-performing loans, the analyst says, who expects the exchange rate to stabilize somewhere between 4.3-4.4 lei/Euro in 2012.

• Dan Bucşa, UniCredit Ţiriac Bank: We expect overdue loans to continue to rise, but at a slower pace

Due to the deterioration of the economic activity in Europe, which impacts the Romanian economic activity, the chief-economist of UniCredit Ţiriac Bank, Dan Bucşa, expects loan delinquencies to continue, but at a slower pace.

"It is hard to tell how much the loan arrears will increase, because the banking market in Romania did not go through a complete lending cycle (which lasts 20-30 years). As a result, the behavior of customers can not be forecasted too well", the analyst notes, who considers that the NBR will defend the exchange rate, which is why the rise of the Euro is no reason for concern.

"As a result, the impact of the exchange rate on the rise of non-performing loans will be low. The EUR/CHF has been fixed 1.2 CHF/EUR, so a potential major appreciation of the leu against the Swiss Franc doesn't seem plausible", Dan Bucşa says.

The danger could come from the fact at liquidity could become more expensive on the international markets.

"The interest rates for loans denominated in Euros will increase in Romania as well, due to the rise of the risk and liquidity premiums demanded by foreign investors. On the other hand, the interest rates in lei may fall if the liquidity that the banking system has been benefiting from for maturities longer than one week improves. For this to happen, further cuts of the policy rate would probably be needed, as well as operations for injecting liquidity (repos for instance) with longer maturities", the analyst says.

The representatives of UniCredit Ţiriac Bank expect the GDP to increase by 1.4% in 2012, based on avoiding the recession in the Eurozone.

"The Unicredit group expects a stagnation of the economic activity in Q4 2011 and the Q1 2012, not a recession", says Dan Bucşa, who concludes that, if we avoid the recession, the pace of the deterioration of the loan portfolio will be slower in 2012.