Bankers ask for mortgage interest deduction and extended lending state guarantee

The fiscal deductibility of the interest rate of mortgages, the elimination of VAT for loan-related insurance and the priority capitalisation of the SME Loan Guarantee Fund are among bankers' proposals for the revival of lending.

The Romanian Banking Association (ARB) last year submitted to Finance minister Sebastian Vladescu a list of 17 steps that are likely to aid thaw private lending.

Largely, this may come about in the wake of the state's involvement through guarantees and subsidies, bankers believe.

Thus, banks maintain the Finance Ministry should view raising the Guarantee Fund's capital as a priority, for the institution to be able to expand current guarantees, but also enter new projects, also through the creation of a guarantee scheme for cash-strapped companies.

For the time being, the Finance Ministry has prepared a regulation specifying the Fund's involvement in the strategies of local authorities and utilities to draw in European funds.

An older proposal by bankers envisages the fiscal deductibility of the interest rate of mortgages, to the end of boosting demand for such loans, but the Finance Ministry is not likely to agree on a move that would trigger fewer budgetary revenues.

Many banks have tens and hundreds of millions of euros blocked in housing projects for which buyers can no longer be found or that cannot even be finalised. As a result, ARB proposes that the state grant subsidies to real estate developers provided they sell newly built housing units at maximum preset prices: 80,000-100,000 euros for Bucharest apartments and other big cities, and 60,000 euros for smaller cities. An alternative is setting price caps per square metre: 900-1,000 euros/square metre in Bucharest and other big cities, and 700-800 euros/sqm in towns.

A major concern for banks is related to the fast rising unemployment rate, as major layoffs are operated in the public sector.

As a result, ARB representatives asked for the resumption of the programme managed in the past 7 years by the National Employment Agency, which envisaged granting loans at lower interest rates to job creating companies.

At the same time, they are waiting for a rapid clarification on the number of employees who are going to be made redundant in the budgetary sector.