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July 27, 2018 www.intellinews.com I Page 11
rather constant over the past three years and a half although indeed picking up (at rates similar to the mortgage loans) in recent months.
There is a trend toward excessive borrowing among families with below-average incomes, central bank governor Mugur Isarescu said at a conference in July, speaking about banks’ focus on mortgage lending. The average indebtedness ratio, namely the debt service as a share of debtors’ monetary incomes, has reached 51%, he warned. He urged banks to shift their focus to corporate lending, which is more likely to stimulate sustainable economic growth.
The sharp rise in mortgage lending illustrates the concentration of the active population in first-tier cities where work opportunities are more abundant. The vibrant residential real estate market in Bucharest and the other large cities (in contrast to the sluggish country-wide construction market) supports the idea. As a share of GDP, the stock of retail mortgage loans more than doubled to 8.0% in June 2018, up from 3.8% in June 2008, several months before
recession. In absolute terms (in euros) the stock of mortgage loans soared more than three times (from €4.75bn in June 2008), to account for 28.8% of the total non-government bank loans up from 9.7% a decade ago.
The positive dynamics of consumer lending is driven by the rise in the average wages and by the distribution of the rise: namely low-income Romanians in the public sector saw their wages rising more than the higher-income families. This boosted consumer confidence, while the confidence of the higher-earning families maintained their consumer habits despite stagnating incomes.
Speaking of corporate lending, the stock of loans to non-financial companies increased by only 3.5% y/y to RON107bn (versus RON128bn retail loans) at the end of June. However, the companies have the option of inter-company lending since many of them are subsidiaries of foreign groups and, for the largest ones, taking out foreign loans.