Ziarul Financiar: Interest rates cannot be lowered, the risk is too high

Demand for consumer credit is at a very low level, but lenders do not intend to lower interest rates to attract new clients, arguing that they incur high costs from bad loans. In the case of loans companies the Effective Annual Interest (EAI) rate for lending in lei reaches 35 to 40%, way above the National Bank of Romania’s monetary policy interest rate of 6.25%. In the case of lending in Euros, the EAI also reaches 30%.

"Interest rates reflect the risk. As long as the rate of bad loans is very high, we can’t lower them."

If the rate of bad loans fell, then interest rates could also fall. Nevertheless, I don’t think the lack of demand is a result of high interest rates, but rather the falling incomes of potential customers," argues Traian Baicu, the director general of TBI Credit, a middle-sized consumer credit company.

TBI Credit is expecting the number of new loans to stagnate this year at the level of 2009, although at the beginning of the year it had budgeted for double-figure growth. At the end of last year, the balance of the loans granted by the company was at around ninety million Euros (380 million lei), compared with 120 million Euros at the end of 2008.

"We forecast growth of 20% in the balance of loans, but this is not going to happen. In the first six months, sales stagnated at last year’s level, around 18 million Euros," said Baicu.

The company is controlled by TBIF Financial Services, which also owns a leasing and an insurance brokerage company on the local market.

At the end of June, the balance of the loans granted by TBI Credit had fallen to 350 million lei. Baicu says that he is expecting to see an improvement in the second part of the year, the same as happened in 2009, and the value of the new loans the company will grant in the following six months is estimated at 22 to 25 million Euros.

"Demand is very low at the moment, and the demand that does exist comes from ineligible customers who are already in debt and who have low incomes, and so we cannot lend to them," explains Baicu.

15% of customers are in difficulty

The TBI business is based on loans granted in shops for the purchase of goods, and the lender’s biggest partners are the Dedeman do-it-yourself chain and Casa Rusu furniture shops. Likewise, the company has partnerships with another 2,000 smaller retailers. Loans granted in shops make up 65% of the company’s portfolio, personal loans 20%, and credit cards 15%. At present, TBI has 30,000 credit cards in its portfolio, and by the end of the year it estimates that it will have issued another 10,000.

"The rate of bad loans stabilised in 2010 at last year’s level of 15%, plus or minus a few percentage points. At the moment, we have 15,000 customers under forced execution. We don’t seize the financed goods, as they have no value. We rely on sequestering wages and bank accounts. From around 50% of these customers I don’t think we’ll be able to recoup anything. This is a figure you accept when you go into the consumer credit business," says the director general of TBI Credit.

He argues that following the stabilisation in the rate of bad loans, the company has recorded a profit of 6.2 million lei in the first five months of 2010, after having made a loss of 29 million lei last year. This year, TBI Credit shareholders have increased company share capital by 3 million Euros, and plan to make a further increase of 5 to 7 million Euros.

Last year, in order to streamline activity, the company closed 60 work points, and currently has 100 regional branches and 300 employees.

Half of the number of state employee customers might restructure their credit

Traian Baicu estimates that around half of the company’s customers who are employed by the state might apply to restructure their credit as a result of wage cuts of 25% in the sector.

"We’re worried about the wage cuts in the public sector and we are open to requests for loan rescheduling. Around 10 to 15% of our customers are state employees and we are expecting half that number to experience repayment problems."

To date, says Baicu, only customers working in the private sector have attempted to restructure loans in order to pay lower instalments, after some were made redundant and others were made to accept wage cuts. Monthly, the company receives 200 to 300 applications for loan restructuring.

"It isn’t a large number in relation to our portfolio overall. Of these applications, only 15% are passed, because many applicants are in arrears with other lenders, and in this situation the chances of default are high."

Source: Ziarul Finaciar, July 2010 (Author: Angela Placinta)