Mortgage Loans Come To A Standstill

Commercial banks will ask the National Bank of Romania (BNR) to modify the regulations on individual lending because the recently introduced conditions have caused a standstill on the mortgage loan market, according to Radu Gratian Ghetea, President of CEC Bank and of the Romanian Banking Association (ARB). "After applying the stress tests, the new algorithm, very few customers are eligible for a mortgage loan," Ghetea explained. As for the obligation to submit a tax balance obtained from the fiscal authorities, the banks anticipate technical problems, but the actual impact of this decision is hard to quantify because of the abrupt slowdown on the mortgage market.

Attending the same meeting, organized by the Romanian Banking Forum, Adrian Vasilescu, an advisor to the National Bank governor, said that BNR had informed commercial banks that the effects of the new regulations would be analysed three months after application. In turn, Ghetea explained that the previous discussion between commercial banks and BNR on this topic had taken place before the financial crisis, when no one was suspecting that the overall market status would worsen so much.

According to Ghetea, the new lending regulations have caused an average decrease by five percentage points in the maximum debt ratio allowed per individual, depending on the type of loan and the customer"s profile. "This is just the average decrease of the maximum debt ratio, but, if we also factor in the quality of the collateral, the duration or the loan and the down payment, the maximum debt ratio varies," Ghetea assed.

The banks proposed a number of measures to stimulate the mortgage market during a meeting with the Government last week. In Ghetea"s opinion, stimulating the mortgage market can lead to an economic revival, because it would create jobs on already started construction projects and also new projects.

In turn, Vasilescu stressed that the banks would pay 9-10% interest on deposits and charge 35% interest on loans (i.e. in RON) and thus secure quite a hefty margin, which they explained by "a change in market conditions." "They say that the market conditions have changed and I"m just wondering what conditions have changed so much to call for such a margin," Vasilescu said.

The banks proposed further reductions in the minimum mandatory reserves and the key rate. "We would like that the money currently blocked in reserves be released in order to allow us to buy treasury bills issued for financing small- and medium-sized enterprises, farmers and home construction," Ghetea further said.

The banks would also want a increase in the share capital of guarantee funds, the establishment of a mortgage guarantee fund and an augmentation of the role and influence of the State-controlled export bank Eximbank. Furthermore, VAT reductions and exemptions for certain categories of accounts, such as construction, should complement these measures.

Some of the bankers believe that the only way to ensure economic revival is construction and especially infrastructure construction. "I"m talking about highways, roads and utility networks such as water, sewerage and gas," Ghetea added.