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| NEW MEASURES TAKEN BY THE NATIONAL BANK OF ROMANIA 21/08/2008 |
| (2008-08-21) |
| Last updated: 2008-08-22 15:53 EET |
In an attempt to stem the increasing appetite for loans that Romanian customers display, the National Bank has tightened rules for loan granting by banks.
Romania consumes more than it produces, which results in a substantial trade deficit. Similarly, Romanians spend more than they earn, and the figures for personal loans from commercial banks have ballooned. The National Bank attempted to limit access to loans by raising reference interest rates seven times within a year, but to no avail. Romanians continue to take out loans, in spite of their becoming quite expensive.
The central bank, therefore, attempted recently to tighten the rules for granting loans. One of the most important effects of the new regulations could be a ban on promotional interest rates. So far, some banks had been using promotional interest rates in order to be able to grant higher loans than permissible by law.
After a given time, the bank would raise the interest rate, and the customer ended up paying back significantly more than they had borrowed. For the banks, this was quite a convenient situation. Now, this practice will come to an end, as maximum interest rates will be frozen. The customers that will suffer most from these new rules will be people taking out large mortgage loans.
Since the reduced promotional interest rate, usually granted for a period of time ranging from three months to one year, is going to disappear, customers can borrow less money. The central bank, however, did make one concession: it is no longer mandatory to run the so-called Individual Financial Stress Test. This test meant that commercial banks had to inform prospective customers of the very worst that could happen when attempting to contract a loan with them. The idea was to discourage uninformed and impulse borrowing.
The new rules also dictate that the maximum amount for a personal loan is to be calculated based on last year’s tax statement. So far, loan ceilings were calculated based on income statements, but many times they proved highly unreliable and misleading. Tax records, however, reflect reality much more accurately.
Banks are also obligated to calculate the degree of debt based on new criteria, such as the customer’s category, the reason for taking out a loan, and the type of the loan, the currency it is in, or whether it has fixed or variable APR.
And, finally, banks that do not have their own regulations for granting loans will have to bring down their ceilings. If until now customers were allowed to have a degree of debt equal to 40% of income, now that figure was brought to 35% by law. All things considered, it is still hard to tell if the new regulations will have Romanians taking out fewer loans.
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