Lending to the economy continues to contract even if the interest rates on loans are very low. The balance of loans in the economy at the end of this June was by 2.8% lower than at the end of last June, totaling 37.5 billion lei. The banks prefer to keep the money in Central Bank Certificates or to place it in state securities, journalist Victor Ursu was quoted by IPN as saying in the program “15 minutes of economic realism”.

The balance of loans in foreign currencies declined by 4.4% (the appreciation of the national currency being an important factor that influences the value of these recalculated in lei), while of loans in national currency decreased by 1.7%. The decline is also due to the bank’s unwillingness to provide loans due to the high amount of required reserves and their profitability. However, the diminution pace slowed down.

The last data of the National Bank show 27% of the loans were released to trade, 14% were intended for consumption, 9.3% were designed for purchasing or building homes, while 8.7% were provided to the food industry. The loans released for purchasing or building homes rose the most, by 16.5% or 434 million lei so far this year. This is also due to the launch of the Firs House program on March 26, 2018.

The loans in foreign currencies, expressed in dollars, grew by 4.5% in the second quarter of this year. The balance of loans in lei decreased by 2%. The rise in the volume of new loans in the second quarter determined an upward trend in lending.

As of 2016, the pressure exerted by the interest rates has diminished essentially, but the business entities’ and consumers‘ access to financing sources is anyway difficult. The banks became more prudent in releasing loans amid the toughening up of the banking legislation. In June 2018, the volume of new loans in national currency was by 11.8% higher than in June 2017. The volume of new loans in foreign currencies was by 13% higher.

The excessive liquidity in the banking system creates a potential risk of financial instability in the national economy. Given that the demand for loans from business entities is low and the conjuncture is unfavorable (nonperforming loans represented 14.7% in June 2018), the banks will choose financial operations with a lower risk and sufficient profitability, such as Central Bank Certificates and state securities, immediately after excessive liquidity rises.

Victor Ursu concluded that lending to business will intensify as a result of a qualitative economic growth. What we witness now is only stimulation of trade, mainly of imports.

The program is produced by the Institute for Development and Social Initiative “Viitorul” in partnership with Radio Free Europe.