- BCR estimates that the banking institutions will find solutions for reducing the down payments for mortgage loans for specific categories of customers, but the Giving in Payment Law thus creates negative premises that will generate social inequalities.
- At this time, we can realistically estimate that the growth rate of mortgage loans will significantly decrease, in contradiction with the needs generated by the low-quality housing stock in Romania (old, cramped, and crowded houses, in urgent need of modernization and rehabilitation and even with a high seismic risk).
- On a general level, the negative side effects of the Giving in Payment Law are already unfolding and will become more prominent on the long term: the conditions for mortgage loans have become significantly more restrictive compared to the period before the implementation of the law, the law accelerates evictions, creates risks for the financial market, impacts the premises of a fair and balanced financial market.
- In the context of obvious negative consequences, we consider that laws should encourage a fair and sustainable path; for example, in 2015, by means of business solutions, BCR has reduced the payment rates of over 30,000 customers, and starting in 2009, over 150,000 customers have benefited from refinancing, restructuring, or cost adjustments.
Two months after the Giving in Payment Law became effective, the National Bank of Romania has published statistics about the impact of the law. Nearly 4,000 customers have used this law, which represents 1 out of 100 customers who took out a mortgage loan. Among the nearly 4,000 customers, there are about 400 customers with a real estate investment profile, who gave in payment at least two buildings, as well as cases where some companies have requested the discharge of their business debts.
Three categories of conclusions stand out at this time, in relation to A) the effects of the Giving in Payment Law, B) the consequences of the Giving in Payment Law, and C) the premises created by the Giving in Payment Law for the future evolution of the financial brokerage in Romania.
A) It is regrettable that, for various reasons (the main one being the loans in Swiss Francs), nearly 4,000 customers have financial problems, so they reached the conclusion that it is better to leave their homes.
However, the nearly 4,000 cases, out of which 1,500 were contested, represent only 0.5% of the 800,000 families, which was the main argument invoked for the endorsement of this law. A difference of 99.5% compared to the statistics on which the initiation and endorsement of the Giving in Payment Law was based, as well as the sophisticated profile of over 10% of the beneficiaries (real estate investors or companies), we consider that it raises serious questions which deserve to be clarified in the spirit of legislative responsibility.
In addition, before the Giving in Law came into effect, the enforcement and home sale process was lasting on average 2-3 years, during which some financial and/or housing solutions could still be found. This emphasizes the most unfortunate effect of the law: The Giving in Payment Law has for effect the premature eviction from the home. The result is a double loss, both for the bank and for the customer.
B) Considering that several banking institutions have announced specific measures for reducing down payments, this aspect does not solve the problems for the financial market in general, and neither does it eliminate the disadvantages created for both banks and customers.
Banks will not be able to ignore the general risk created by the Giving in Payment Law, but will only be able to identify individual solutions, depending on the customers’ profile and the liquidity of regional real estate markets. Down payments will be more calibrated, but for the customers this means in fact a shorter loan period or stricter income criteria. In this context, the down payment reduction measures represent risk calibration solutions, but, for the average customer, the general access conditions will be more restrictive compared to the time period before the law became effective.
The recent evolution of mortgage loans had a 9-10% annual increase rate, thanks to a stable risk base and clear advantages for customers: loans in the national currency, low interest rates, fixed interest offers for 5 and 10 years. We can realistically estimate at this time that the mortgage loan growth rate will significantly decrease, in contradiction with the needs generated by the low-quality housing stock in Romania (old, cramped, and crowded housing, in need of modernization and rehabilitation and even with a high seismic risk).
C) On a systemic level, the Giving in Payment Law has significantly impacted the recovery of trust between banks and customers, based on the reduction of costs with banking services and solutions for reducing indebtedness, under legislative stability circumstances. Moreover, the Giving in Payment Law has negative side effects on the long term: it institutionalizes evictions in an unsustainable manner, creates risks for the financial market, reduces access to mortgage loans.
The Romanian banking system will continue to develop pragmatic solutions, and the market will make the selection in favour of businesses that are stable and fair. Taking into consideration all these aspects, we consider that the Giving in Payment Law is far from being fair and from generating stability.
Thus, we reiterate the fact that the Giving in Payment Law was created in an erroneous (and possibly unconstitutional) paradigm, representing an impediment for the economic safety and stability of Romania and reducing the credibility of the local investment environment. As long as the laws do not encourage business solutions towards social challenges, and economic policies will not stimulate the attraction of financing and investments, the financial brokerage will diminish, along with the premises for prosperity on the long term in Romania.
NOTE: Under the circumstances created by the Giving in Payment, BCR has adopted a prudential approach and has calibrated the lending risk, analysing the evolution of regional markets. As a result, BCR has decided to reduce the down payment from 35% to 25% for standard mortgage loans granted in 20 of the largest cities in Romania, based on the following arguments:
- the real estate market in medium and large-sized towns has been experiencing an accelerated dynamic, but also a higher level of liquidity.
- the decision for a segmented approach towards the market, depending on the capacity of regional absorption and liquidity, allows us to offer adequate solutions, because the majority of the customers’ applications are concentrated in those medium and large-sized urban areas
- the solution is meant to help customers who are forced to own a larger down payment, considering the higher prices of housing in medium and large-sized towns.
Banca Comercială Română (BCR), a member of Erste Group, is the most important financial group in Romania, including universal bank operations (retail, corporate & investment banking, treasury and capital markets), as well as companies in industries such as leasing, private pension, and mortgage banks. BCR is the no. 1 bank in Romania based on the value of the assets (EUR 14.4 billion), the no. 1 bank based on the number of customers and the no. 1 bank for the savings and loan segments. BCR is the most valuable financial brand in Romania by customer trust and by the number of people for whom BCR is the main institution for banking services.
BCR offers its entire range of financial products and services by means of 22 business centres and 23 mobile offices dedicated to companies and 510 retail units in most of the cities throughout the entire country with more than 10,000 inhabitants. BCR is the no. 1 bank in Romania on the banking transaction market, BCR customers benefiting from the largest national ATM network - more than 2,000 dispensers - and the largest national POS network - 13,500 credit card terminals, as well as from comprehensive Internet banking, phone-banking and e-commerce services.
Erste Group is one of the main financial service providers in the Eastern part of the European Union. 46,500 employees serve 16.2 million customers within 2,800 branches in 7 countries (Austria, the Czech Republic, Slovakia, Romania, Hungary, Croatia, and Serbia). At the end of the first quarter of 2015, Erste Group had total assets amounting to 202.6 billion Euros and had a cost/income ratio of 56.1%. The Tier 1 Common Capital Ratio (Basel 3 completely implemented) amounted to 10.2%.
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