The Swiss franc is getting ready to make a killing on the lending market now that large banks like Bancpost, BRD-SocGen and Raiffeisen are borrowing cheap funding solutions used in Central Europe for six years, which were imported by the OTP Bank Romania in the autumn of 2005.
Obviously, newcomers like Bancpost have no choice but to operate interest at a lower rate than that of its competitors. Raiffeisen launched housing loans with a 4.9% interest a year, two weeks ago. Now Bancpost is offering a 4.85% option, which is only valid for the loans higher or equal to 80,000 francs (some 50,000 euros). The interest will go up to 5.35% a year for smaller amounts, with both rates being fixed for the first year. The rate for loans with variable interest stands at 6.5% at the moment, very close to the interest rate for euros.
Truth be told, the Romanian banks were relatively late in realising this, as the Swiss National Bank is following the lead of the European Central Bank and has just upped the bounds of the interval in which it intends to maintain the three-month LIBOR for Swiss francs by 0.25% to 1.25%-2.25%. The interest stood at 1.76% yesterday. Still, the cost difference compared to funding in euros is still significant, so banks are determined to take advantage of this solution as long as it remains profitable. The 40% minimum mandatory reserve required by the National Bank of Romania (NBR) also applies to resources attracted in francs, yet the Swiss currency is cheaper to get with the help of parent banks.
Although the initial offer of OTP was met with suspicion, later sales have proven otherwise. In ten months, OTP has found 150,000 customers for loans in Swiss francs worth a total of 175.9 million francs (over 111 million euros).
"We have learnt, also from our experience, that it is the lowest interest rate that sells mortgages best, no matter how hard we might try to explain to our clients that they are taking a foreign currency risk. We also kept in mind the very strong appetite for Swiss francs in Central Europe, which helped boost lending," says Mihai Bogza, chairman of Bancpost.
BRD-SocGen, the second-largest bank on the domestic market, has a discreet product offer in Swiss francs, aimed at customers making higher than average income and who have been clients of the bank for a long while. The interest starts from the three-month LIBOR rate for francs plus a "confidential" margin.
Patrick Gelin, the top man at the bank says the distribution policy for this product is carefully controlled, because he sees considerable risks related to the exchange rate and to the variable nature of the benchmark rate.
Both factors mentioned have turned out to be very stable over the last few years, actually reflecting a tradition, yet interest is now going up, reflecting the trend of dollars and euros, amid inflationary pressures. As for the exchange rate, NBR's rates for the Swiss franc have fluctuated slightly between 2.20 and 2.38 RON (8%) since the beginning of the year. When it comes to the interest rate, one cannot overlook the benchmark rate for dollars, which went up from below 2% to over 5% in less than three years.
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