According to the Bank Lending Survey published by the National Bank of Romania, in 2017 Q2, banks tightened significantly credit standards for loans for house and land purchase as well as for consumer credit. Credit institutions pointed to the following determinants behind this evolution: the NBR’s monetary policy decisions or prudential measures, expectations regarding general economic context, requirements concerning the level of indebtedness, expectations regarding households’ financial standing and the risk on borrower’s creditworthiness.
For the following three months, credit institutions envisage credit standards to tighten marginally for housing loans and moderately for consumer credit. In the euro area, in 2017 Q2, banks continued to ease credit standards for housing loans and kept them unchanged for consumer credit. For the coming quarter (2017 Q3), credit standards are anticipated to ease for both loans for house and land purchase, and consumer credit.
According to credit institutions, the main factors behind the tightening of credit standards for housing loans in 2017 Q2 were the NBR’s monetary policy decisions or prudential measures, expectations regarding general economic context and requirements concerning the level of indebtedness.
In 2017 Q2, credit terms and conditions on loans for house and land purchase saw further mixed developments since the prior quarter. Specifically, on the one hand, maximum monthly debt service to monthly income tightened considerably, while, on the other hand, requirements concerning the maximum loan-to-value (LTV), the spread between the average lending rate and 1M ROBOR and non-interest rate charges eased moderately.
The average LTV ratio for new housing loans granted over the last three months decreased slightly since the previous quarter, standing at about 76 percent. The average LTV ratio for the total housing loan stock came in at around 84 percent, similar to the 2017 Q1 reading.
Average level of indebtedness for new housing loans came in at 44 percent, in line with the prior quarter and the level for the total housing loan portfolio further stood at 45 percent.
Consumer credit particulars
In 2017 Q2, banks tightened significantly credit standards for consumer credit, mainly on the back of the NBR’s monetary policy decisions or prudential measures, expectations regarding households’ financial standing and the risk on borrower’s creditworthiness. The other factors that impact credit standards for consumer credit did not undergo any notable changes.
Consumer credit demand
Consumer credit demand fell marginally in 2017 Q2. This was attributed primarily to the considerable decrease in demand for mortgage-backed consumer credit, which could not be offset by the significant rise in non-mortgage-backed consumer credit.
In the case of credit cards, demand remained unchanged. In 2017 Q2, the number of rejected loan applications witnessed a moderate decline compared with the previous quarter. For 2017 Q3, banks expect a marginal increase in demand for consumer credit.
Loss given default
In 2017 Q2, the average loss given default (LGD) for loans for house and land purchase and that for mortgage-backed consumer credit stood at about 35 percent, while for non-mortgage-backed consumer credit and credit cards it came in at around 67 percent and 57 percent respectively. At aggregate level, LGD for defaulted loans4 to households remained relatively unchanged in 2017 Q2, at approximately 43 percent.
For further information: NBR Bank Lending Survey