The financial institution estimates that the losses of local lenders caused by nonperforming loans could amount to nine percent of Romania’s gross domestic product (GDP), namely RON 43 billion (some €10 bln), almost one quarter of the total nongovernmental loan.
However, this amount is lower than in other countries, such as Poland and Hungary, where losses are expected to amount to 11 and 15 percent, respectively, of GDP.
The average in former communist countries that are now members of the European Union, is 13 percent of GDP. Data provided by the World Bank indicates that lenders in Central and Eastern Europe (CEE) have the advantage, to some extent, of low loans to GDP ratios.
Nonperforming loans are expected to continue rising in Eastern Europe, because the rate of loan arrears is still low compared to other banking sector crises. The World Bank talks about the 1998 banking crisis in Russia, when 40 percent of loans turned nonperforming, or that in the East Asian banking system in 1997, when the rate of nonperforming loans exceeded 30 percent in several countries.
On the other hand, World Bank experts said that, given the CEE solvency indicators, lenders are able to handle rising losses.
World Bank experts added that there is also a more optimistic scenario for CEE countries, where the prices of homes used as collateral for loans have not collapsed; in that case, the recovery rate on the mortgage segment could amount to 75 percent, which would lower the losses of banks.
In Romania, many banks have not resorted to foreclosing on mortgages to recover their money from nonperforming loans. The rate of nonperforming loans in Romania, calculated based on the methodology used by the International Monetary Fund, increased to 9.6 percent of total credits in August, almost three times higher year-on-year.
World Bank data further indicates that the Romanian corporate sector is the most exposed to bank loans of all CEE countries, but the loan to GDP ratios in the region remains low.
At the end of 2008, Romanian enterprises were more likely to cover bank payments than most countries in the region, such as Slovenia and Hungary. However, loan to GDP ratios in the Romanian household sector is the lowest of all countries in the former communist block.