The decline in the maximum value of a loan, a longer time to process a credit application brief, extra trips to the tax administrations and turning the local banks into brokers of parent banks for the retail market are some of the effects bankers anticipate in case the new NBR regulation draft to contain lending is enforced.
The central bank is trying to deal the deathblow to the loans that require only a valid ID by a Regulation draft that makes it mandatory for banks to require their clients to produce proof of their incomes in the previous year in form of tax returns. Even if their incomes increased, the bank will only take into account a 20% higher income than put in the tax return filed in the previous year.
At the same time, banks will have to run a stress test for each client to see if they could sustain a scenario in which financial conditions worsen as a result of a depreciation of the RON combined with an increase in interest.
"The maximum value of the loan will go down because we will have to take into account the worst scenario of the last eighteen months for the same income, and on the other hand the time it takes to approve a credit application brief will probably increase," comments Mihai Bogza, chairman of Bancpost's Board of Directors and former vice-governor of NBR in charge of regulation.
This means banks will have to take into account an about 15% depreciation of the exchange rate and an increase in interests on RON by two or three percent to simulate an increase in the repayment effort to which a client may be subjected.
Bogza explains that in their current form, NBR's proposed regulations leave many issues not clearly specified, such as how people can prove continuity of their incomes in case they are more than 20% higher than in the previous year.
"However well grounded NBR's regulations might be, they have an unintended effect: discriminate Romanian banks against foreign banks that want to conduct operations in Bucharest and against branches," Bogza points out.
The new regulations are included in a draft to modify Regulation no. 3 issued last year, whereby the NBR deregulated retail credit market. The central bank is expecting feedback from the banking community until July 16. Once it enforces, banks will have 45 days to comply with the new regulations. In case a bank does not implement the stress test procedures, it will have to lower the maximum indebtedness cap for its clients to no more than 40% from the 65-70% at the moment.
One of the potential reactions of the banks? Turning into brokers of the parent banks, on behalf of which they can also grant loans to individuals, after having resorted to such practice for corporate loans for years.
"I agree with NBR's reasons, but I don't know if this is the most reasonable measure that can be taken. Banks will end up outsourcing retail loans because such restrictions force banks to grant loans directly from abroad. This is the most natural reaction when too many barriers are being erected because no one is willing to give up racing for clients and market share," comments Dan Pascariu, chairman of the Board of Directors of UniCredit Tiriac.
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