The credit for the private sector did not put up the price

The international credit crisis should have made the credits much more expensive and harder of being taken, inclusively in the euro zone. This doesn’t happen at least for the moment, it is revealed in a study published by Guillermo de la Dehesa, president of the Economic Policy Research Centre (EPRC). Although the banks from the euro zone confront with some important problems imported from the American credit institutions, they haven’t increased the costs and neither limited the access towards the loans which the private sector offers.

The advance for crediting has easily decreased in the euro zone, but the European banks have been more temperate then the American ones concerning the risks which have assumed, that allowed them to “defy” the subprime credit crisis, reveals the quoted study. According to the European Central Bank (ECB) report from June related to the evolution of crediting in the euro zone, the average interests rates for the granted credits to the private sector didn’t record significant increases. Moreover, in case of the credits granted to the non-financial corporations, the interest rates have recorded a low decrease. In what concerns the access to the credits granted by banks in the euro zone, this practically maintained at values comparable with the ones before the subprime credit crisis, the study also reveals. The increase rhythm of the volume for the credits granted to the private sector has recorded a low decline in May 2008, against April and March, but it isn’t a phenomenon of vast proportions, which to show that the banks from the euro zone have been affected by the international credit crisis.

Financing price

So, the interests for the lines of credit with overdraft have decreased from 6,62% in December 2007 to 6,54% in April 2008. In what concerns the credits up to one million euro, the initial interest rate, in case of the credits with variable interest rate granted for more than 5 years, has decreased from 5,3% in December last year to 5,22% in April 2008. Also, the credit interest over one million euro granted on a period of maximum five years, has decreased in the same interval from 5,48% to 5,39%. Instead, the mortgage credits and the consumer credits have recorded low increases of the interest rates. So, the average interest rates for the loans granted in base of some real-estate securities have easily increased from 10,46% in December 2007 to 10,55% in April, the current year. Moreover, the initial interest for the consumer credits with variable interest granted for more than 5 years has increased from 8,17% up to 8,45%, in the same interval. Although, the interest rates for buying houses have easily decreased for the credits with variable interest granted for more then 10 years, reaching in April 2008 to 5,11%, from 5,18% as they were on last December.

The volume of the granted credits

This evolution of the interest rates in the euro zone is being recorded as a result of the slowing down of the annual rhythm of increase of the volume for credits granted to the private sector, which has decreased from 12,2% in March to 12,0% in April and 11,9% in May. So, the annual rhythm of increase for the credits granted to the companies from the private sector has decreased from 10,8% in March to 10,6% in April, respective 10,4% in May, and the rhythm of the loaning directed to the non-financial corporations has recorded a decline up to 14,2% in May, from 14,9% in April. For the granted mortgage credits, the annual interest of increase has also recorded a decrease from 5,4% in March to 5,2% in April and 4,9% in May. Moreover, the rhythm of the loaning directed to purchasing houses decreased from 5,5% in May to 5,9% in April 2008, and the rhythm of increase for the consumer credits reduced to 4,8% in May, from 5,2% in April.

Reasons for putting up the price of credits

The study reveals four reasons according to which the banks from the euro zone could have been forced to increase the interests for credits, as a result of the international financial crisis. The first reason consists in the higher level of risk exposure for the debts amassed by banks, against the debts of other non banking financial institutions, even if the last ones received the same ratings related to the risk. That’s why the credits granted by the banks to the non banking financial institutions are less, or even at all profitable, in terms in which the banks don’t perceive additional taxes or don’t increase the interest rates for the credits granted to the other credit institutions quoted with a lower level of risk. The second reason might be represented by the increase of the Euribor interest for the credits granted for one month and three months, and the third possible cause could be represented by the fact that the volume in increase determined the banks to become aware of the fact that they have granted loans whose cost didn’t cover the risk which the respective credits assumed. More than that, the banks were forced by the International Financial Report Standards to sell a big part of the assets in depreciation at the current market value.

Structured off-balance sheet investments

Some European banks have resorted with the approval of the institutions of settlement from the markets on which activate, to instruments of off-balance sheet investments, with higher risks then the ratings granted by the banks’ specialized institutions. This is the reason why the respective banks have lost more then 450 billion American Dollars from August 2007 and till now, in base of the significant depreciation of the securities supported by assets. The instruments of structured investments were created with a minimum capital for borrowing capital on short term, in order that this capital to be offered to long term crediting on the European and American markets, in both situations being used securities guaranteed through assets. In base of the depreciation of the mortgage assets value, the banks didn’t manage to refinance the structured investment instruments, thing that can direct to introducing them back in the consolidated sheets. The study estimates that in case in which banks from the euro zone reincorporate the structured instruments by investments in their consolidated balance sheets, will suffer a decrease from 8% to 7% of the assets eligible to participate at the social capital. Taking into account that the capital increases are rather improbable, the quoted study mentioned that will take place a decrease of the credit volume granted in the euro zone with up to 12%.

Euro zone stands aside

Despite the reasons enumerated above, the banks from the euro zone don’t put up the price of loaning and don’t aggravate the conditions for accessing the credits. The study presents five causes which can represent the reason for maintaining the cost and volume of the granted credits. So, the banks have a tight bond with their important corporate clients, the big corporations from the euro zone not facing yet situations of incapacity of payment, thing that would have forced the credit institutions to increase the interests for loans. In what concerns the private capital funds and the hedge funds, the banks tend towards a relaxation of the average rate of guaranteed credits, which till now was of about 90%, in base of diminishing the borrowed capitals for increasing the potential of investments (de-leveraging). Moreover, the proportions of the phenomenon of investment through the instruments of structured off-balance sheet investments is much more reduced in case of the banks from the euro zone that for the American credit institutions, and the small and medium sized European companies aren’t so indebts as their correspondents over the Atlantic. Another cause can be the fact that those who have contracted credits with mortgage security in the euro zone have made it in order to buy a house, not for consumption. Moreover, many of the big European corporations are still well quoted by the rating agencies, having a solid financial situation.

Yes, for us

The National Bank of Romania (NBR) elaborated a project regarding the natural person credits, that had as goal to reduce the risks and to limit the increase speed of the crediting and having as direct target the consumer credit. According to NBR’s document, the banks will calculate the indebt level of the credits granted to the population in base of some incomes with mostly 20% over the ones stated at the financial administration on last year and not only in base of wage record or other documents as it happened till now.

So the banks will have to realize analysis of stress for customers, to evaluate the capacity of reimbursing these in unfavorable conditions, in base of the available information during the last 18 months since applying for credit. The credit institutions will make a projection of the reimbursement capacity of the customer, using the highest interest, the highest level of depreciation of leu rate and the highest level of the applied taxes, practiced in the institution in this period. Moreover, it was introduced the compulsoriness of limiting to maximum 40% the indebt level, in terms in which the most of the banks have adopted increased levels of indebt, that could reach up to 70% from the available net income.

The Americans face problems

The mortgage bank IndyMac Bancorp Inc, headquartered in California, has recently interrupted its activity at the request of the arbiter of the American banking market. He interfered after the withdrawals carried on by the alarmed depositaries have directed to the third banking bankruptcy from USA’ history, Reuters transmits. IndyMac, the fifth American bank which went bankrupt this year because of the credits and mortgage crisis, it was specialized in granting mortgage credits because required few justificative documents to the customers. This case is one of the most resonant from the last ten years. The federal authorities were forced to record the enter in incapacity of payment of the bank after what the deponents have withdrawn a value of about 1,3 billion dollar in 12 days, leaving the bank in liquidity crisis.