At the end of April, Romania’s parliament approved a bill allowing borrowers to walk away from their mortgage debts. The Banker looks at mortgage holdings of the largest banks in the country.  

The Romanian government approved a bill at the end of April that allows mortgage borrowers to turn in their housing collateral and stop repayment of loans. According to The Banker Database,  the largest stock of mortgages at the country’s top banks belonged to BRD Groupe Société Générale, which sat on $2.91bn of mortgages at the end of 2015 (see chart). Raiffeisen Bank Romania held the second largest amount of mortgages, at $2.1bn.

Both of these banks are subsidiaries of foreign groups. BRD Groupe Société Générale is owned by the French Société Générale, while Raiffeisen Bank is a branch of an Austrian lender. In fact, 91% of Romania’s banking assets belong to foreign banks, primarily Austrian, Greek and French lenders. However, Romanian banks tend to be less dependent on mortgages than many of their foreign peers. At Banca Transilvania, which is the largest bank in the country by Tier 1 capital and locally owned, mortgages amounted to $440.06m as of the end of 2015.

Another foreign subsidiary, Banca Comerciala Romana, which belongs to the Austrian Erste group and which is the largest bank in the country by assets, also has a modest mortgage portfolio, of $338.03m.   

The law is already changing the business model at many banks. Armen Dallakyan, senior analyst at Moody’s, says: “The most obvious impact of the law on banks’ business models is that they are raising the downpayments on mortgages.” This is going to dampen demand for loans and, in the long term, force banks to be less reliant on mortgages for revenue.

Mr Dallakyan does not expect many borrowers to take advantage of the law. He says: “The risk of the take-up on the new law is low for owner-occupied mortgages, but in case of home equity loans and second-home mortgages with a high loan-to-value ratio, we could see some higher defaults.”

Defaults could place additional pressure on Romanian banks that are troubled by high non-performing loans (NPLs) – the sector average was 13.85% in March of 2015, according to the National Bank of Romania. The share of troubled loans is 17% at BRD Groupe Société Générale and 6.67% at Raiffeisen Bank Romania.

High NPLs can be attributed partly to the collapse in housing prices that Romania has experienced in recent years – the housing index fell 25 points between 2009 and 2012. Real estate prices have not picked up since, leading to problems with mortgage repayments. However, the central bank has warned that the bill could exacerbate problems with the housing market as downpayments on homes could increase to unsustainable levels and economic growth would be slowed down significantly.

 

Chart Mag

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