Romania’s National Bank (BNR) has approved a regulation that caps the interest rates that non-banking financial companies can charge from their clients.

Several non-bank institutions will come under BNR’s supervision following the approval of this new regulation.

Some companies, such as Provident Financial, active in the low-value credit market, managed to guard against BNR’s prudential supervision by transferring credits below the statutory threshold before reporting periods, several sources told Profit.ro.

The bill imposes on non-banking financial institutions (NBFI) huge capital costs if they exceed certain consumer credit interest rates. The changes impose a risk weight of 1000% for loans with an annual effective interest rate of more than 200% with a maturity of up to 15 days, for those with an interest above 100% with initial maturity between 16 and 90 days and for those over 10 times the Lombard interest rate (3.25% at present), namely over 32.5% for maturities over 90 days.

The BNR decision leads to de facto capping of interest rates, given that non-banking credit institutions should raise capital more than 10 times the amount granted if they exceed the limits described above.

Some institutions that provide low-value loans do not resort to forced execution in case of default and cover losses through high interest rates.

BNR argues that the measure is needed because the NBFI sector has grown in recent years and because high interest rates would lead to the over-indebtedness of a vulnerable segment of the population.

editor@romania-insider.com