Monday, March 30, 2009

Romanian Overdue Debt Soars on Weaker Leu, Rates

By Adam Brown

March 30 (Bloomberg) -- Overdue private debt in Romania more than tripled on the year in February as a weaker leu made foreign debt harder to repay and the highest interest rates in the European Union increase domestic debt loads.

Loan payments more than 30 days overdue debt rose to a record 4.3 billion lei ($1.3 billion) in February from 1.3 billion lei a year earlier, the Banca Nationala a Romaniei said on its Web site today. Overdue debt rose from 3.5 billion lei in January and 2.9 billion lei at the end of last year, an increase of 48 percent.

Overdue debt is soaring in Romania as the leu has weakened about 14 percent against the euro in the past year after years of a lending boom in the European common currency. The central bank’s main interest rate, at 10 percent, is the highest in the EU even as economic growth falters, making domestic loans more expensive to repay.

Private debt jumped for the past four years, rising as much as an annual 64 percent, as economic growth fuelled wage gains, higher foreign investment strengthened the leu and foreign banks including Erste Bank AG and Societe Generale SA lowered fees and rates as they fought over market share in Romania. Now, slowing wage gains, rising unemployment and a drop in investment are making it harder to continue paying for the homes, cars and foreign holidays Romanians bought on credit.

IMF Bailout

Romania agreed last week on a 20 billion-euro ($27 billion) international financing package led by the International Monetary Fund. President Traian Basescu has predicted the loan will help strengthen the leu and central bank Governor Mugur Isarescu has said it may prevent the country from slipping into a recession.

Overall growth in private debt is now slowing and was an annual 30.7 percent in February, from 34 percent in January, according to central bank data. Overdue debt, as measured by payments more than 30 days late, counted for about 2 percent of the total private debt load of 207 billion lei in February.

The central bank said on March 20 that it will allow commercial banks to include guarantees from borrowers when calculating how much money they must set aside to allow for doubtful debt. They can include 25 percent of the value of borrowers’ guarantees when making provisions. For provisions, the central bank calculates bad debt as payments that are at least 90 days overdue.

To contact the reporter on this story: Adam Brown in Bucharest atabrown23@bloomberg.net

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