Loan defaults up 76% in Q1 2009

• Dumitru, Raiffeisen Bank: "The situation is a cause for concern, but it"s manageable"

Andreea Arăboaei

Defaults on individual and corporate loans increased by about 76% in Q1 2009, reaching five billion lei (EUR 1.2 billion), with the largest spike in the case of foreign currency loans, which are up 118.6% from the end of 2008, according to data by the Romanian Central Bank (BNR).

This evolution is a cause for concern, but we can handle it", considers Ionuţ Dumitru, Chief-economist of Raiffeisen Bank. The most important factor that could affect things for the worse is the evolution of unemployment, because shrinking individual earnings causes an increase in the number of loan defaults, he added.

Financial consultant Aurelian Dochia estimates that the situation is dire, but it will improve by the end of the year, as the number of defaults is beginning to drop. The current situation indicates that there are no major problems for the entire banking system, but there are some banks whose numbers are not as good as they could be, meaning they will have to increase their share capital, the analyst said.

Banks took steps towards rescheduling loan installments, following discussions with the customers, but this also has a negative effect because overdue payments increase provision-related expenses for banks, causing them problems, Aurelian Dochia said.

Defaults for foreign currency loans reached equivalent of 2.17 billion lei (EUR 519.12 million) at the end of April, up 118.6% from from 993.3 million lei (EUR 249 million) at the end of 2008.

These numbers are however due in part to the 5% depreciation of the leu since the end of 2008, whereas data published by the National Bank is presented in lei.

Compared to April 2008, the number of loans overdue for more than 30 days more than doubled (224%) from 1.553 billion lei, according to data from the Central Bank.

At the end of last year, population and companies had 2.865 billion lei (EUR 719 million) in overdue loan payments.

At the end of April, defaults reached 2.5% of the total number of loans extended by banks to individual and corporate customers, from 1.44% at the end of 2009 and 0.91% at the end of April 2008, data of the Central Bank shows.

Overdue payments in lei have increased at a smaller rate during the first quarter, (53.3%), from 1.87 billion lei (EUR 469 million) to 2.87 billion lei, (EUR 685.88 million).

The outstanding amounts across the banking system dropped 1% compared to March 2009, to 201.5 billion lei, with leu-denominated loans holding the largest share - around 60%.

Bucharest has the largest number of loan defaults, up 108.8% in April to 1.72 billion lei, compared to April 2008. The second and third positions in the loan default charts are the counties of Timiş and Braşov, where outstanding loans reached 217.19 million lei, and 183.64 million lei, respectively.