Savings keeps gaining ground against loans

Caution generated by uncertainty regarding the progression of incomes is driving companies and the population to keep saving, with the loan/deposit ratio dropping to 117% in late September, a level that had not been reached since early 2008.
A year ago, the loan/deposit ratio stood at 124.7%, before already dropping to around 119% in mid-2009, according to NBR statistical data.
"There are several factors behind this decline. First, solvent demand for loans is slowing down, while savings are rising. At the same time, the way foreign currency financing can be obtained is another element generating this tendency," points out Lucian Anghel, a chief economist with BCR.
On the other hand, several banks have removed loan portfolios worth hundreds of million euros from their balance sheets. In any case, the ratio between loans and deposits of above 1 is entirely generated by foreign currency financing, in the context where in RON banks have granted loans of around 0.85 RON for each RON attracted from the market, according to NBR data.
At the same time, time deposits banks attracted in the first nine months of the year rose by 27% to 115.8bn RON (around 27.7bn euros), spurred in first half by the high interest rates offered by financial institutions as they fought for cash. Starting the third quarter, deposit interest rates have gradually declined.
Analysts say the way the loan/deposit ratio fluctuates in the following period depends a lot on the way the "First Home" governmental programme reflects on the market. A possible reversal of the downward tendency also depends on economic recovery, but this will not happen very soon.
At the same time, the profitability rate of the core business in the banking system as a ratio of operating revenues and operating expenses in the third quarter climbed to around 153% after having dropped from 182% to 148.7% during September 2008-June 2009, indicating banks are again having cost control troubles despite layoffs.