Bankers granted mortgage loans with promotional interest ratesduring the lending boom years, set at low levels for only a whileafter which they become variable, worth 7 billion RON (some 2billion euros at the exchange rate of the time).
This marketing stunt, however, is backfiring on bankers now,because as interests are reset, the monthly instalment goes up, butwith clients already under pressure, many end up falling behindwith their payments. What impact might it have? NBR experts havecalculated that banks might end up having to provision anadditional 75 million RON (almost 21 million euros). The amount isnot overwhelming, considering banks have already set up 4 billioneuros in provisions, which go up by tens or hundreds of millions ofeuros every month.
For instance, the monthly instalment of a 40,000-euro mortgageloan, repayable in thirty years, stood at 275 euros, at a 5.75%interest per year. If the interest goes up to 7% a year, theinstalment reaches 310 euros or 330 euros at a 8% yearly rate.
Promotional interest rate loans were what drove the US realestate market towards collapse, as many low-income clients werenudged by brokers and helped by banks to buy homes they actuallycould not afford.
Promotional interest rate loans took off in 2008 when bankerswere rushing to gain market share, with the share of such loans inthe total new loans granted to consumers reaching 50%, according toNBR's 2009 stability report.
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