Romania unveils rules to curb borrowing risk

Central bankers have labeled as excessively risky the current pace of lending to households, which stood at 130% on the year in June for hard currency loans and 36% on lei credits. Under the new rules banks will have to assess clients’ lending applications based on annual fiscal statements instead of income certificates issued by employers as up to now.

Analysts have said many employees as well as firms in the new European Union member have used fake certificates to get access to more financing. The norms also oblige banks to consider -- for debt ceiling calculation -- only incomes of up to 20% higher than those stated with fiscal authorities in the previous year. The central bank said banks, with internal lending regulations not endorsed by the central bank, would need to impose a maximum debt ceiling per household of 35% from a previous 40%. Currently, most of Romania’s banks apply a maximum debt ceiling of 70% of the applicant’s family net income.

Banks will also need to separate their marketing and sales credit departments from those in charge with overseeing credit risk and monitoring of borrowing exposure, in a bid to create “healthy borrowing practices,” the norms said. The central bank has raised interest rates by 325 basis points since October to tame stubborn inflation, hoping that by making borrowing less accessible it would weaken consumption.

Analysts have long warned about overheating in Romania as fast consumption and credit growth fuel a large trade deficit and fan inflationary pressures. The external shortfall deficit reached 14% of GDP last year raising concerns about potential troubles in financing it if foreign cash flows were to dry up. (Reuters)