The National Bank of Romania (NBR) is not pleased with the massive interest rate cuts for deposits in ROL and hopes they will not fall any further, said Cristian Popa, the NBR vice-governor. "The banks have been making massive interest rate cuts for deposits recently. They didn''t cut rates on loans in ROL at first, as they were a bit wary of this trend. Interest on credits is going down now, as well, but interest rate spreads need to narrow substantially," said Popa, while presenting the latest developments on the Romanian banking market at the "Banking on Romania" forum in London organised by The Banker magazine with the support of Banca Comerciala Romana. Over a span of only six months, average rates for deposits in ROL have halved from 14% to 7% a year, while rates on loans in domestic currency have remained higher. This has allowed banks to gain from spreads of 15-20% between active and passive interest rates. The result became visible at the beginning of the year, when profitability across the banking system surged to 24.1% in January, up from 17% in December of last year, NBR data show.
Popa says the central bank needed to narrow the gap quickly between rates in Romania and those in the West while maintaining a balance between the decline in interest rates and the appreciation of the ROL in order to discourage large inflows of capital after the deregulation of non-resident access to deposits in ROL. The NBR pressure for rate cuts has made banks push rates on deposits lower, even below the level of inflation, delaying the change in the direction of investment from deposits with the central bank to loans.
The NBR vide-governor says the central bank did not witness any speculative capital inflows after the formal date of deregulation, April 11. "The market remained very calm, there were no visible moves, which also came as a result of the falling interest rate and the stability of the exchange rate." he said, adding that it would be difficult to know what would happen next. razvan.voican@zf.ro
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