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Most of the 1.43 million Romanians who have bank loans are among those most affected by the effects of inflation because, in their case, a sacrifice curve will follow and they will have to decide what to pay first – their loans or their bills, according to an analysis carried out by the Frames consulting company and the Cuculis & Asociații law firm, quoted by Agerpres. According to Frames’ estimates, the most vulnerable in terms of default risk are currently families with children, pensioners and single people on minimum wage.
“Significant price increases are putting increasing pressure on Romanians’ money. Among those most affected by the effects of inflation are the 1.43 million Romanians who have bank loans. For them, a real sacrifice curve is ahead. They will have to choose which to pay first – the loans or the rising bills for a decent life. According to an analysis carried out by the Frames consultancy company and the Cuculis & Asociații law firm, it is not excluded that, in the conditions of the real financial tsunami that is to come, the rate of non-performing loans will exceed 10%”, the source quoted above states.
Stress tests carried out by the National Bank of Romania (NBR) at the end of 2020 indicated, in a risk scenario, that the non-performing loan rate could reach 9.2% in December 2021 and 9.9% in 2022. In April, the NPL rate was 3.94%, above the end-2020 level of 3.83%.
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Since then, the economic situation has fundamentally changed. The chain of price cuts has put financial pressure on the 1.43 million Romanians with loans to increase significantly, so the NBR scenario seems out of date.
“The major price hikes in utilities – gas, energy, fuel – are, unfortunately, just the tip of a real iceberg of price hikes that we will feel most strongly from November onwards. As Romanians’ salaries have not increased during this period, the financial pressure has intensified,” Frames analysis shows.
With Romanians’ financial strength eroding sharply, many of those with home, car and consumer loans will find themselves in a risk zone, so rescheduling, rescheduling or refinancing their loans becomes absolutely necessary, the paper explains.
Currently, according to data from the NBR, there are 158,901 individuals with loan arrears and their share is low at only 2.55%. The value of outstanding loans is 3.9 billion lei.
“Romanians should know that they can renegotiate their loans, that they have rights under the law that allow them to save their homes, their property from foreclosure. They should turn to specialists, seek legal assistance because, for many of those in difficulty, every day of delay will be counted as a risk”, said lawyer Adrian Cuculis.
According to data from the National Bank – Central Bank Risk Centre, cited in the analysis, mortgage loans are in the forefront, the value of which, as of August, exceeded 70.9 billion lei and which, together with other loans for real estate investment (46.1 billion lei), represented the largest share of loans to the population. Consumer credit stood at 64.8 billion lei.
“The value of mortgage loans increased compared to the same period last year by 8.7 billion lei. For Romanians, owning a house, even on credit, is a matter of security and prospects. Our estimates show that, even in the darkest scenario – with bankruptcies, staff layoffs, etc., the payment of the loan instalment will be in their focus, beyond the other costs related to everyday life”, assessed Adrian Negrescu, Frames manager.
In a scenario where many Romanians will not have enough money left for a decent living, renegotiating bank contracts, leases and other loan categories becomes an optimal solution in the current economic context.
“After the wave of payment deferrals in 2020, following the COVID pandemic, the banks, even if they are doing quite well financially, having sufficient reserves to face the crisis, have become more reluctant to offer better conditions to their clients, but it depends on each one how they can support their case, how they manage to convince the bank that they have to reduce their rate, at least temporarily. With a well put together file, with arguments and the necessary assistance, a favorable outcome can be achieved”, said the representative of the law firm Cuculis & Associates.
Beyond those who will want to renegotiate their loans, there will be many clients who will default, the lawyers believe.
According to NBR data, consulted by Frames, the largest arrears, in terms of the value of arrears, are over 5 years (1.9 billion lei), followed by those between 1 and 5 years (1.3 billion lei), 181 days – 1 year (295 million lei). Overdue loans up to 15 days represent 113 million lei, an increase of 10 million lei compared to last year.
“The biggest problems with overdue loans are in Bucharest-Ilfov, where they represent 1.8 billion lei out of the total of 78.7 billion lei. Next are Cluj county – with 199.2 million lei, Brasov – 195 million lei, Prahova – 189.2 million lei, Timișș – 180.2 million lei, Constanța – 150.4 million lei, Iași – 138.4 million lei, Argeș – 136.3 million lei. These areas are also expected to have the highest number of non-performing loans,” the analysis shows.
According to Frames estimates, the most vulnerable in terms of default risk are currently families with children, pensioners and single people paid on minimum wage.
“Families with at least 2 children are the most vulnerable to the economic situation we are facing. The dramatic rise in prices of food, services, utilities affects them the most, as childcare is increasingly expensive and most of them are tied up in home, car or consumer loans,” analysts estimate.
According to the Frames analysis, banks’ largest exposure is on long-term loans of over 5 years (117.9 billion lei), followed by medium-term loans (1-5 years) – 34.4 billion lei and short-term loans (up to 12 months) – 1.4 billion lei.
In terms of the type of loans in lei, in August, consumer loans accounted for 52.9 billion lei, housing loans for 76.8 billion lei and loans for other purposes – 245 million lei.