An interest rate hike for loans granted to individual customers is inevitable as the current level is extremely low, says Sorin Popa, head of retail at BRD-SocGen.
"In Romania interest rates, at least for euros, do not reflect market risks or realities. A very low interest rate level will eventually penalise banks," believes Popa.
However, he says BRD has not raised interest rates for retail loans lately, but such a decision will be considered. The bank will also discuss whether an increase in interest rates will just apply to new loans or to contracted loans as well.
Ever since the end of summer, when turmoil on the financial market drained liquidity and lifted refinancing costs, several domestic players with aggressive price policies have been forced to make adjustments. Volksbank lifted interest rates on euros as early as September, which encouraged customers to shift to financing in RON or Swiss francs. Banca Transilvania also decided to lift its interest rates on retail loans, inclusively in a bid to strengthen its hedging policy after it registered a higher demand for financing.
As the winter holidays approach, several players have resorted to last year's trend of launching promotional campaigns based on interest rate cuts.
Popa highlights that promoting loans with low interest rates raises problems because they are only valid in the short term.
Bankers have discovered that loans, which initially have attractive interest rates, are a good marketing tool. BRD also launched a similar alternative for mortgages, after it implemented its own lending norms. However, Popa says BRD's cautious approach towards the mortgage market remains unchanged, whilst the bank shuns project financing.
Popa explains that on mature markets mortgage loans are not profitable in themselves, whilst banks use them to secure customer loyalty and to whom they subsequently sell products with more consistent margins.
In 2007, the bank opened over 200 units, and now operates a network of 750 branches and agencies, with 9,000 employees. However, Popa says BRD will significantly reduce its future network expansion.
"We have to take into consideration international trends as well," concludes Popa.
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