Lending to non-financial corporations

According to the survey on the access to finance of the non-financial corporations in Romania published this month by the National Bank of Romania, lending to non-financial corporations in terms of credit standards tended to stagnate in 2018 Q1 both at aggregate level and by category. For in 2018 Q2, banks expect credit standards to remain unchanged.

In the euro area, credit standards for enterprises eased January through March 2018, compared with the end of last year. By company size, credit standards eased for all types of companies, especially for small- and medium-sized enterprises.

The key factors that helped ease credit standards were the competitive pressure and banks’ risk tolerance, whereas the cost of funds and balance sheet constraints had a neutral impact. For the upcoming quarter, euro area banks anticipate credit standards for enterprises to ease further.

Factors behind the change in credit standards: the current or expected capital position of the bank; NBR’s monetary policy decisions and prudential measures; expectations regarding general economic activity; industry-specific risk; changes in the share of NPLs in the bank’s portfolio; risk on collateral demanded; risk associated with a steep increase/decrease in house prices (only for commercial mortgage-backed loans); pressure from bank competition; pressure from non-bank competition; competition from market financing (capital market and shareholders, etc.) other. At local level, all contributing factors had a neutral impact on credit standards.

Turning to commercial mortgage-backed loans, the related credit standards were left unchanged in 2018 Q1. For the following three months, banks envisage credit standards for such loans to remain unchanged.

Credit terms and conditions for loans to non-financial corporations saw no change, except for the spread between the average lending rate and 1M ROBOR, which experienced a moderate tightening, on the back of its increase.

In terms of loan demand, In 2018 Q1, loan demand increased markedly at aggregate level versus the previous quarter. The breakdown by company size shows that small- and medium-sized companies were chiefly accountable for the increase, regardless of maturity. Large companies preferred short-term loans, hence demand for such loans advanced moderately, whilst that for longer maturities stayed put.

Against this backdrop, banks could become more interested in lending to non-financial corporations, thereby broadening their access to financing. Credit institutions’ expectations are further indicative of a moderate increase in applications for loans, regardless of company size and loan maturity.

The corporate loan rejection rate remained unchanged in 2018 Q1 from the preceding quarter, for all types of loans (long-term or short-term).

Credit risk with respect to non-financial corporations remained relatively flat by sector, except for the companies operating in tourism, for which banks’ perception of risk worsened marginally

The loss given default (LGD) at aggregate level contracted sizable down to 27 percent, against 42 percent in 2017 Q4. The breakdown by sector shows a relatively even change in the LGD. Specifically, except mining, where the LGD posted a marginal rise, all the other sectors reported declines, the most significant being those in trade, utilities and services.

For further information: NBRSurvey on the access to finance of the non-financial corporations in Romania