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More than half of loans extended on variable costs

More than 57 percent of the loans denominated in the local currency, the leu (RON), and more than 63 percent of the loans denominated in the single European currency are taken out on variable interest rates by individuals, show data with the National Bank of Romania (BNR), which indicates the magnitude of the population's exposure to the risk of interest rises, daily Ziarul financiar reports on Tuesday.

The rising loan costs have become visible from month to month since last autumn, when the world financial crisis and inflation surge triggered successive interest rises. Most of such loans are part of promotional campaigns and the interest due on them is computed for the first one or two years only, after which significant interest rises are likely, if the world financial developments of the past year is anything to go by. Local banks say they can bear the risk of granting RON-denominated loans on fixed interest rates as long as inflation is far from the one in the Euro zone. At the same time, in the case of euro-denominated loans, they point to many uncertainties over the costs of drawing financial resources, given that a significant share of uncertainties is determined by BNR measures, starting with the statutory reserves. The weight of interest rates in the total monthly loan installments embarked on a slightly falling trend in 2007, particularly as a result of the nominal interest rates having fallen to below 7 percent, but over the past months the situations witnessed a dramatic reversal. A loan applicant having taken out a loan last summer on variable interest rates have now to bear a 3-4-percent increase in monthly costs. Recent data with the BNR indicate that overdue personal loan installments were standing at some 145 million euros, as of end-April 2008, up 2.5 times from April 2007 and 3.6 percent from end-2006. In its latest report on financial stability, BNR is warning that increases in forex funding costs will significantly affect both corporations and individuals. The situation of individuals would be all the more vulnerable as forex debt in 2007 exceeded the value of forex-denominated financial assets. Sursa: http://www.actmedia.ro

Tags: interest rates financial loans denominated variable percent costs euro bnr

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