Friday, January 16, 2009

Romania softens lending rules in anti-crisis move

BUCHAREST, Jan 15 (Reuters) - Romania's central bank on Thursday relaxed conditions it had placed on banks issuing new mortgage loans in a bid to offer anti-crisis support to the emerging economy.

The bank had imposed harsher new rules on lending last August, aimed at limiting risks related to fast household credit growth, seen as a key threat to macroeconomic stability.

But analysts say Romania, which faces the prospect of a sharp slowdown towards 3 percent from an expected 8-9 percent in 2008, now needs to prevent private lending from falling sharply if it wants not to harm its prospects for economic growth.

'To limit the fallout of the global crisis on the domestic economy, the board has deemed appropriate to make a distinction between lending requirements on mortgage-backed loans and those applicable to other loans categories,' the central bank said.

The bank explained that default rates have been considerably lower among debtors with mortgage guarantees compared to other categories, including unsecured consumer loans.

It said banks would have the possibility to allow higher indebtedness levels for borrowers 'that would have high-quality real estate assets as collateral for their credits.'

The bank declined to give details of the precise rise in the level that will now be applied to banks including BCR, owned by Austria's Erste and BRD, owned by France's Societe Generale.

The August rules imposed a maximum ceiling of 35 percent of the applicant's net household income on monthly debt payments.

Private lending rose mildly by 1.1 percent on the month in November after a 0.6 percent fall a month earlier and compared to a 5.8 percent increase in Nov. 2007.

Analysts say the amendments to the rules might have limited impact on lending growth.

'It was a necessary move, aimed at stimulating lending as the economy is slowing down,' said Nicolae Alexandru-Chidesciuc of ING (nyse: ING - news - people ) Bank in Bucharest.

'But overall we will not see a significant impact ... it will help avoid a steep slowdown in crediting.'

The rules come into force after their publication in the official gazette.

(Reporting by Radu Marinas and Marius Zaharia; Editing by Patrick Graham) Keywords: pgROMANIA LENDING/

(radu.marinas@reuters.com ; +40 21 315 8320; Reuters Messaging: radu.marinas.reuters.com@reuters.net )

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