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The banking system is definitely regarded as the most stable of all sectors of domestic economy, a fact which is often underlined by financial assessment agencies, international funders and foreign investors. However, interest rates (both on interests and on loans) are pretty high so far, as often signalled by economic agents and population in general. A comparison with regional systems would prove that interest rates are reasonable enough, given the risks and the massive exposure of economy to the exterior. The nominal interest rates dropped down to the historical minimum of 16 percent. However, the real interest rates reached the level of before the crisis. This trend continued in the first half of 2011, with the nominal rate of credits reaching 14.2 percent, while the real rate was 6.5 percent^[1].

On the one hand, its integrity (penetration) level in the economic system is relatively modest. For example, the share of loans in GDP is about 34 percent. Well, their share was 40 percent in 2007, but the share of loans in GDP dropped in 2008–2010, following the regional crisis which hit the domestic market. On the other hand, perhaps, the more or less restrictive policy of the central bank advantaged commercial banks and economy in general to avoid a system crisis, on background of participation of banks in different risky projects, including mortgage-related. This fact strongly fuelled non-performing loans.

If one remembers, the share of bad loans on system was high enough two years ago, around 20 percent of all credits. Commercial banks credited at large at a certain period, without imposing any conditions, particularly consumption and mortgage projects for developers. It was a consumption boom, as consumption credits were fancy and could be easily contracted. Even more, many banks launched into mortgage projects without assessing judicially the risks and consequences, so that many of them face difficulties today to get bank their money (one of them even went bankrupt) or many of these credits were declared as non-performing.

Even more, IMF experts raised concern while on the recent assessment mission during September 13–21 with the delay in adopting a package of legislative amendments needed to facilitate bank mortgage restructuring, collateral execution, and resolution of debtor insolvency, a reform outstanding from 2010. According to IMF representatives, a swift Government approval of the drafted amendments and their speedy consideration by Parliament would greatly facilitate a reduction in banks’ bad loans and a concomitant increase in new lending. Similarly, parliamentary passage of the draft package of laws to resolve the difficult situation in Banca de Economii stemming from its involvement in the resolution of the failed Investprivatbank should proceed without further delay.

However, the share of bad loans in all credits on banking system was more than 9 percent in late August, or it was over 13 percent early this year. Thus, following the crisis occurred in 2009, the system or banks became more reticent with credit release, introducing stricter conditions and severe requirements for companies, as well as for population. This attitude developed despite the fact that the liquidity rate is one of highest in the region, but banks are very cautious while providing credits. It is harder now to get consumption credits than 2–3 years ago.

A high indicator definitely influences the crediting policy of banks, too, as they increase interest rates, introduce additional/collateral or management costs, etc. As a rule, bad loans or their share in all credits granted by banks are invoked by banks as a key cause of the high interest rate. At the same time, the more expensive the credits are, the higher the risk of rise in bad loans is. Or, by using high interest rates, banks are trying to ensure their profitableness, or to reduce their losses in the worst of cases.

The crediting-related risk is high enough in the current post-crisis conditions. For this reason, high interest rates on credits are justified by the so-called risk premiums, which increased exponentially. However, banks should be more distinctive while crediting businesses and population, as their crediting situation is not the same. The position of some firms or companies is not so bad despite the crisis. Notwithstanding, the very high interest rates may deteriorate the financial condition of banks, and they are not interested in such a possibility. Therefore, banks should estimate well their crediting-related risk, should be more select and accept lower rates for safer credits. Otherwise, the high share of non-performing loans could persist for a long time.

 

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