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BNR Report: High nonperformance rat due to debtors
The high level of the nonperformance rate which unfavorably influences bank profitability is also due to maintaining a significant share of debtors in the portfolio, including those who proved they could no longer pay, the Report on financial stability for 2013 made by the National Bank of Romania shows.
“For instance, in case of people’s portfolio, about 70% of nonperforming debtors (with real estate credits or consumer credits guaranteed by mortgages) had not been paid their debts for a year. Banks used restructuring/rescheduling solutions but the efficiency of those managing techniques for nonperforming credits has been below potential,” the report shows.
BNR points out that two other solutions less used by banks – debt session or debt cancellation – may be more efficient.According to the report, the most important positive effect in the case of more ample use of the solutions mentioned would be improving the image of the Romanian banking sector by reducing the stock of low quality stock.
“For instance getting out of the report nonperforming credits generated by companies would reduce the nonperformance rate of the sector from 23.4% to 7.5%. The drop would be created by reducing the high volume of nonperforming credits generated by debtors with low probability of paying their debts (credits with debts over 365 days represent 19.7 billion lei, 74% of all nonperforming credits in August 2013)” the report shows.
At the same time the report says that the Romanian banking sector recorded losses in 2012 (2.3 billion lei) because of the substantial growth of the provision volume for credit risk, on the background of nonperforming credit volume increase.
However, large banks succeeded to stay on profit. The drop of provision expenses and the reduction of financing costs on the background of improving the perception on Romania’s sovereign risk led to profit in the Romanian banking sector in the first 8 months of 2013 (1.5 billion lei).
According to BNR report profit indicators (ROA and ROE) returned to positive values (0.6% and 5.9%). The sustainable return of credits in the private sector is the essential condition to have positive financial results on the long run.