Romanian finance minister forces banks to cut interest rates on Govt.-backed mortgage loans

Romania’s finance ministry explained in a press release issued on May 5 that the new benchmark used by banks for calculating interest rates on retail loans (IRCC) will also be used in the case of the government-guaranteed loans like Prima Casa (First Home).

The relevant legislation was drafted already, is subject to public debate and will be passed quickly, the ministry informed thus addressing the diverging comments made by bankers on this issue.

The regulations specific to the loans helping individuals buy homes, cars and invest in own education specifically include the old benchmark interest rate - ROBOR, which is being replaced by the IRCC that better reflects the average interest rates on the money market, according to the Government.

The banks will be allowed to add 2 percentage points (pp) above IRCC for the loans aimed at the purchase of homes and for the loans aimed at education, and up to 3pp in the case of the loans extended for the purchase of a car. The new lending terms will be more restrictive for banks on the short term, but the impact of replacing ROBOR with IRCC on the long term is still unclear, possibly null.

The National Bank of Romania calculated the IRCC at 2.36% based on the average interest rate on interbank transactions in the last quarter of 2018. For comparison, the 3-month ROBOR average, the most used reference for local currency mortgages, was 3.17% in the same quarter.

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