The stock of non-government bank loans in Romania decreased by 3.3% y/y to RON 218.5mn [ EUR 48.7bn ] at the end of 2013, the central bank announced. The decline was 4.5% expressed in euro. On the back of robust rise in deposits, the loan-to-deposit ratio calculated for the non-government sector improved from 114% at the end of 2012 to 101% a year later, meaning that except for the government's operations [deposits/loans], the country's banking system can finance the current stock of loans from own deposits. The rise in deposits, however, is expected to ease with the decline of interest rates. But on the other hand, the stock of loans is not showing signs of recovery. The credit figures released by the central bank include the large and rising volume of bad loans. The share of bad loans – defined as those under loss and doubtful categories, namely with payment incidents of over 60 days or under legal procedures, increased by a couple of percentage points during the past year to over 30% at the end of 2013. CREDIT DYNAMICS ADJUSTED FOR EXCHANGE RATE VARIATIONS Adjusted for exchange rate variations, the stock of bank loans decreased by 4% y/y to EUR 48.7bn at the end of 2013 – or by EUR 2.06bn during the year, according to our calculations. Expressed in local currency and also adjusted for the exchange rate variations, the decline was 4.1% y/y – or RON 9.24bn in absolute terms. LOCAL VS. FOREIGN CURRENCY LENDING While the stock of local currency loans slightly increased, by RON 593mn [0.7% y/y] to RON 85.35bn at the end of 2013, the stock of foreign currency loans expressed in euro contracted by EUR 2.2bn [6.9% y/y] to EUR 29.68bn . The shift from foreign to local currency lending was driven by the monetary policy interest rate cut – which however failed to boost overall lending. The transmission mechanism remains undermined by currency substitution. The share of foreign currency loans decreased to 60.9% of total loans at the end of 2013 from 62.5% a year earlier but still remains at a level where the exchange rate variations have a significant impact on the credit quality. CREDIT BY DEBTOR While the stock of loans to households edged down by only 1.2% y/y to RON 103.2bn [ EUR 23.02bn ] on opposite trends in mortgage and consumer lending, the stock of loans to non-financial companies decreased steeper – by 5.4% y/y to RON 112.3bn [ EUR 25.05bn ] at the end of 2013. The stock of mortgage retail loans expanded by 10.2% y/y after a similar 11% y/y increase in 2012 and accounts for 18.7% of the total non-government loans. Consumer loans, on the opposite, shrank by 7.8% y/y in 2013 after a similar 6.4% y/y decline in 2012 but still account for 24.5% of total non-bank loans.
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