Non-collateral loans are public enemy no. 1 of banks

Individual arrears exceeding 30 days registered an 18 percent increase in February, to €308 million, and bankers who had a lenient loan policy and those who chased after market share are now carefully watching the non-collateral loans granted to individuals. Non-collateral loans make up about half of total consumer loans, worth €17.75 billion. The default rate is the highest for non-collateral loans, and the chances of full reimbursement are almost nill.

Individual and company arrears amounted to €1.047 bln in February, according to data provided by the National Bank of Romania (BNR), and bankers are now setting several hundred million euro aside every month for provisions, the latter totaling €246 mln in February alone, for loans worth €2.24 bln.

"I expect the economic climate to further deteriorate, and banks will continue to set up provisions. The main concern of bankers is arrears on non-collateral consumer loans, and it is difficult to estimate how much they will be able to get back," said Dan Pascariu, Chairman of the Supervisory Board of UniCredit Tiriac Bank. The situation of bank loans worsens with each passing day, as the national currency continues to depreciate against the euro, and the number of jobless Romanians grows. While in January 60 percent of the loans granted to Romanians could have been labeled as "clean", this ratio decreased to 59 percent in February.

Bankers are concerned because the loans included in the "loss and questionable" category make up 8.43 percent of total credits, worth €46.3 bln, compared to 7.61 percent in January. Consumer loans granted to individuals make up about three quarters of the total credits taken out by the population, and banks have 10-80 percent exposure on non-collateral personal credits.

"As of 2008 we concentrated on granting mortgages, so that the share of non-collateral loans in terms of total credits dropped to 30 percent, from 60 percent in 2007," said Ramona Barbu, Chief Executive Officer of the DBSol Consulting loan brokerage firm.

Business Standard