Romanian Ctrl Bk Drops The Loan Stress Test – Sources

"There were several reasons for the elimination of this provision, including the possibility that the scenario presented to the client could be more optimistic than future conditions, which would have enabled the client to issue a challenge. In compensation, the debt ceiling might be adjusted with respect for the risks, including the exchange rates risk," the quoted sources added.

On Jul 8, the central bank issued a draft regulation setting that Romanian lenders are to consider incomes up to 20% higher than those the borrower stated with fiscal authorities in the previous year to calculate the debt ceiling allowed for household lending, and not just salary statements and documents currently. The central bank initially said it expects comments and observations on the regulation by Jul 16.

The new regulation would also oblige lenders to conduct stress test analyses, to assess each potential client’s ability to repay the loan in stressful conditions, based on information available targeting a period of at least 18 months prior to the assessment, using the highest interest rate possible, or the highest level of depreciation of the domestic currency, including for indexed loans, and the highest level of fees perceived by the lender in the mentioned period.

Several bankers expressed discontent with the central bank’s draft regulation, while economic analysts said they expect such measures to slow down credit growth.

The regulation will be applied within 45 of when it comes into force, and banks will apply a debt ceiling of 40% of the client’s income at most until the central bank approves lending rules for each bank.

The central bank extended until Jul 31 the period for public debates on its draft regulation after several commercial banks required the extension.
In March last year, the central bank softened household lending rules, allowing each bank to set its own rules.

Central bank governor Mugur Isarescu warned repeatedly in recent months that private debt in Romania is on a fast track and lenders tend to underestimate risks.

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