Romanian bank loan losses expected to reach €10 bln

One in four loans granted in Romania could generate losses for local banks, according to a conclusion drawn by World Bank experts, following an analysis of the previous banking sector crisis in various countries.

The financial institution estimates that the losses of local lenders caused by nonperforming loans could amount to nine percent of Romania's gross domestic product (GDP), namely RON 43 billion (some €10 bln), almost one quarter of the total nongovernmental loan.
However, this amount is lower than in other countries, such as Poland and Hungary, where losses are expected to amount to 11 and 15 percent, respectively, of GDP.

The average in former communist countries that are now members of the European Union, is 13 percent of GDP. Data provided by the World Bank indicates that lenders in Central and Eastern Europe (CEE) have the advantage, to some extent, of low loans to GDP ratios.

Nonperforming loans are expected to continue rising in Eastern Europe, because the rate of loan arrears is still low compared to other banking sector crises. The World Bank talks about the 1998 banking crisis in Russia, when 40 percent of loans turned nonperforming, or that in the East Asian banking system in 1997, when the rate of nonperforming loans exceeded 30 percent in several countries.

On the other hand, World Bank experts said that, given the CEE solvency indicators, lenders are able to handle rising losses.

World Bank experts added that there is also a more optimistic scenario for CEE countries, where the prices of homes used as collateral for loans have not collapsed; in that case, the recovery rate on the mortgage segment could amount to 75 percent, which would lower the losses of banks.

standard.money.ro