Romania Central Bank’s bank lending survey

The Central Bank of Romania published its regular report on bank lending survey on Q2 2014 figures and expectations of banks for Q3 2014 (http://bnro.ro/PublicationDocuments.aspx?icid=11324). The figures present not a bright picture on corporate loan demand for the third quarter of 2014, as provided by the chart below.

Year 2014 is expected to be another challenging year for the Romanian banks as the Central Bank initiated a significant balance sheet clean up, aimed at reducing NPL ratio in the Romanian banking system from 22.3% in Q1 2014 to 13.6%. The balance sheet clean-up has several directions: first is recording off-balance sheet of fully provisioned NPL (the painless step for the banks), the second refers to fully provisioning of loans overdue by more than 1 year and the third is related to a distinct treatment of loans granted to companies in insolvency via the recording off balance sheet up to 90% of the exposure (this is the most controversial measure, as banks claim they have higher recovery rates than 10%).