"In practice, we have got to the level of taking money out of people''s pockets. In theory, we can no longer talk of saving".
This statement was made by Misu Negritoiu, deputy general manager with ING Bank Romania, after the first banks reacted to interest rate moves by the NBR by aggressively reducing their rates for RON-denominated deposits to as low as 2.5% per annum - lower than the interest on foreign currency deposits.
This happened at a time when inflation forecasts for the year are pointing toward 8.8-8.9% and gains in the form of interest are further reduced by the 10% tax (this is set to increase to 16% as of January 2006).
Quoting the risk associated with inflows of speculative capital attracted by the interest rate gap, the NBR reduced to 1% the rate for one-day deposits by means of which commercial banks can rid themselves of liquidities left at the end of an operational day.
"We cannot pay much more for attracted deposits. I do not understand why the economy needs to be financed by the population, at small rates of interest. We are going back 10 years, when, irrespective of inflation, banks were not allowed to grant loans with interest rates higher than 5%," said Negritoiu.
BCR, the largest bank on the market, is preparing to cut its interest rates by around one percentage point for RON-denominated deposits, taking them to around 6% per annum, with allowances for longer maturities.
At the same time, BRD, the second largest player on the market, plans to remunerate its customers'' savings by about 5% per year.
"These are sad days for the banking system. The outlook for growth in consumption is the same because there will be a switch of lending from foreign currency to RON. Banks were ready to halt new consumer loans in foreign currency, and in the case of mortgages I really don''t see what the risk is, considering we will switch to the euro anyway. Mortgages are more secure in foreign currency, given that nobody has long-term financing resources in RON," said Mihai Bogza, former NBR deputy governor in charge of banking surveillance and the current Bancpost chairman.
Bogza''s bank can no longer grant loans in foreign currency and is looking for solutions. He explained: "We will probably raise our capital, we will move part of our existing loans abroad, and we will try to persuade our customers to take to RON."
"At present, we no longer know what interest rate the market can take as a benchmark: the 7.5% rate, at which only 10% of deals are performed, or the 1% rate at which the rest of deals are sealed. If it''s the 1% rate then I don''t understand how we can continue to speak about disinflation and the kind of signals that are sent to the market. It is clear that banks cannot spread the high liquidity surplus, of probably over 15 billion RON at market level, as rapidly through RON loans," said Claudiu Cercel, who is in charge of the market operations department at BRD-SocGen. razvan.voican@zf.ro
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