Lending Restart ?

by Steven van Groningen on 13 May, 2010

One of the questions I am asked a lot is when banks will “restart lending”. The truth is that, except for a short period about a year ago, when markets were not functioning properly, banks are lending. However, volumes are much lower than before and dropped  in 2009 by as much as 80 % for some products.  The main reason for this decline is lack of  consumer confidence.

No Confidence, No Borrowing

Consumer confidence fell more in Romania than it did in the EU and other CEE countries. Not only did it fall more, it also remained lower for longer and is still low today.

This has an important impact on consumption. Somebody who is concerned about his future will not spend money unless necessary. Who will buy a new car, an apartment or a flat screen TV if concerned about his/her future? Taxes might go up, unemployment is on the rise. People that have money save it for later and those that don’t have money are even more reluctant to take out a loan. In times of economic uncertainty and lack of confidence people repay loans and try to save some money for later, when they might need it more.

This is clearly visible in the activity of our bank. Last year we saw an around 70% drop in the number of credit applications. At the same time we saw only a modest increase in the rejection rate. This shows that the reason why less lending is taking place is in the first place because of much, much lower demand. Banks have become more conservative, but this has translated in a slightly higher rejection rate only.

Low Interest Rates Are Not Enough

Sometimes we hear politicians and press complaining about the high interest rates that banks are charging for credits as the reason why people are not taking out loans and use the money to consume. Of course the cost of a loan has an influence on the propensity of someone to take a loan, like with any other product of service. But we only need to take a look at what is happening in West Europe, where interest rates are very low, in order to realize that the real factor is not interest rates but consumer confidence.

So, if we want to stimulate consumption and economic growth, we need in the first place to see what can be done to improve consumer confidence. Once we have a consumer with confidence in his or her future, demand will return and we can further stimulate consumption by cheaper credit, fiscal facilities and other measures.

How to improve consumer confidence ? A clear, consistent and credible plan on how to deal with the crisis would help. Implementing it even more.

Every day conflicting messages about lay-offs in the public sector, pension and salary reductions or VAT and income tax increases will not help to increase consumer confidence.

{ 23 comments… read them below or add one }

Catalina May 14, 2010 at 19:42

Great initiative! I think the public needs competent, high quality information in order to develop different perceptions and new understandings about what is going on in the economy. In my view confidence increases substantially when there is hope for the future and trust in the competence of the leaders, starting with those from the government and continuing with those running the main private and public sectors. Give people a vision and show there is a way to get there. And that the path is never straight and therefore flexibility in thinking and actions is needed to be able to re-direct efforts in a direction that brings progress. It’s not the first or the last crisis, there are lots of millionairs that are born- by the way -in this period, and there is always day after night. When people understand and learn new ways of investing, especially in this world where the geographical boundaries are dismantled, when there are new ways of doing business and connecting with clients, money will start circulating even more. So, confidence comes also from the competence of the public. The more informed, educated people become the more choices they create on what to do with the money they would otherwise save. So, invite other experts and create a community that educate the public even more. Let’s not sign up for the recession but for progress! Success and have fun:-)))


SvG May 14, 2010 at 21:48

Thanks Catalina ! That is encouraging !


boldfrank May 17, 2010 at 13:22

This is very good ensight about what happens with the lending on the retail side! I believe that all the bankers which are still hoping to see a rebound of the retail lending during this year should face the reality that retail lending will not take off soon. Strangely enough, too few bankers speak about corporate and SME lending, which is the only area where the banks will be able to make money this year and probably next year – not to mention that corporate and SME lending might have a positive effect on the economy, on the economic growth. Also, if companies including SMEs would be supported, they would be able to create jobs having finally an effect on the consumer confidence and take off of retail lending as well. I would appreciate a lot if you could prepare in the future a post showing your views on corporate lending. Thank you!


SvG May 17, 2010 at 23:08

Thanks for the comment, Boldfrank. I agree with you that corporate and SME lending has more potential for growth at the moment. I’ll dedicate a post to it later, thanks for the suggestion!


mihai May 19, 2010 at 11:11

glad to see a bog written by a top professional who knows what he is talking about. Hope you’ll have the time to keep writing, we need more of that


alexandru May 22, 2010 at 12:42

Graficul prezentat de dvs.este destul de sugestiv.Poate ne puteti prezenta unul despre increderea populatiei in banci pe aceleasi coordonate si urmarind aceleasi categorii de consumatori ;ar fi destul de interesant de comparat…..


SvG May 22, 2010 at 14:52

Nu stiu daca sa masoare asa ceva. Incredere consumatorului este masurat lunar de mai multe instituti. Incredere in banci sigur a cazut, nu in intregime justificat. Poate investigezi un pic si-daca gasesc ceva- scriu despre asta alta data .


antiorice May 22, 2010 at 23:57

We know that the state isn’t the best administrator in the world but a certain beer company would probably perform better.

As a bank, I’d lower interest rates in order to solve the exact thing that generated the crisis, cash flow, or lack of it.

I’d take the initiative in reconstructing the economy for two good reasons – I’d have the possibility to change something as a bank and still make money out of it, secondly, my business exists as long as there is an economy for that matter.

Have a nice day.


SvG May 23, 2010 at 09:10

Indeed, as a bank I would like to give the lowest interest rates to clients that need loans and the highest to depositors while still remaining profitable. In order to do this I need to manage the difference in the best possible way. The main problem is that consumer confidence is very low and even with low rates there is little lending. We test this and other banks do the same. Volumes are low. In west Europe interest rates are lower (Romania pays a country risk premium) and not a lot of lending seems to be taking place. I’ll write in one of my following post about lending interest rate levels. Even people that have money and don’t need a loan are not spending a lot but saving. We need confidence.


ALEXANDRU May 23, 2010 at 07:48

Problema este ca bancile sunt percepute din pacate tot mai mult ca niste camatari (loan shark),si atunci evident omul nu se ingramadeste sa solicite un credit…de acord ca bancile trebuie sa faca profit,ca orice unitate economica, dar ele beneficiaza de un statut special,si atunci ar trebui sa aiba si un comportament pe masura…..
P.s-nu astept raspuns in romaneste,in engleza e o.k,dar mi-e mai la indemina sa scriu in romana….


SvG May 23, 2010 at 09:36

Indeed there is a lot of negative publicity and quite a bit of it totally justified, especially when we look at investment banking. In Romania the press and politicians have joined the international band wagon while in fact no bank needed to be saved. Some criticism is deserved and banks need to do more in order to improve transparency and to focus more on the interest of their customers. You are quite right when you say the negative perception of banks doesn’t help lending. Politicians and others that are unjustified bashing the banks are not helping the economy. The much too negative image they create slows down lending and there for consumption and economic growth. I have pointed this out on the highest levels but…..


Alexandru May 24, 2010 at 14:00

Da,este adevarat ,si cel mai simplu este sa se ajunga la o “vinatoare de vrajitoare” cu rezultate lesne de prevazut.Dar cel mai bine este sa avem o atitudine constructiva si sa ne concentram pe actiunile pe care le putem face fiecare dintre noi…..pentru zona bancara,renuntarea la unele din “templele”unde isi desfasoara activitatea,unele ostentativ ornate si de dimensiuni impresionante-ar ajuta…..ma indoiesc ca o banca care-si desfasoara activitatea in Olanda sau Germania ar afisa o asemenea opulenta….probabil clientii ar considera ca ei ar trebui sa plateasca pentru asta….


Alexandru May 24, 2010 at 14:20

Un sistem cu locatii mai mici ,mai prietenoase,ar crea o alta imagine unei banci….de asemeni o alegere cu mare grija a personalului ce lucreaza direct cu publicul-imaginea bancii-este de dorit…..nu reducerea cheltuielilor,ci reducerea risipei…..in rest,constientizarea faptului ca suntem toti in aceeasi barca ar ajuta mult…..


Juan Huitz May 24, 2010 at 14:46

I like this blog. I work for a large Romanian bank on SME business development. I’ve worked in this segment before in Slovakia, the Czech Republic and Poland. Romania is special. It’s nice to see someone write with a similar perspective. Keep it up.


Mihai Andrei May 26, 2010 at 11:54

Good day,

First I would like to congratulate SvG for his initiative, which shows that there are top executives with their feet on the ground and to whom 2006 -2008 successes have not altered their personality. For this and for the fact that you accept the public debates and for being opened to the press, Congratulations!

Nevertheless, despite the fact that I admire you optimism, which you have translated through your essay’s (lending restart, no confidence no borrowing, low interest rates are not enough), I would like to ask you how exactly do you think that optimist could kick start the economy and implicitly the banking system?

I ask this question as I believe you are well aware of the fact that:

* Romanians are over indebted (and I do not refer to financial penetration, household’s loans / GDP, but to household debt service which is 40% in total income)
* Almost all bankable clients have debt (with a debt service of 40%)
* New bankable clients will be scarce as wages in private sector contract
* Public sector employees (most preferred lending segment) will receive 25% lower wages
* The shinning star, the SME sector, is much undeveloped and unable to cope with the turmoil. Plus a large part of it consists in company’s that should have been bankrupt long ago; the crisis just offered them a last push. As figures, SME NPLs and rejected payment orders talk for themselves.
* The construction sector, ‘my favorite’, reflects perfectly almost all the negative aspects of the Romanian people (greed, lack of professionalism, swindle, and poor judgment).
* From the large corporate part, even if lending will continue, it will not have the strength to push the economy.
* The grey economy (30% in GDP) will not produce bankable clients and will not resuscitate the economy even if it will become whiter, which unfortunately is a long lasting, since 20 years ago desiderate.

So, what will grow? Consumer lending, again taking debt with 20% interest rate for acquiring fast depreciating assets?

Now, regarding poor judgment and monkey business I would give as example the developers and the banks that together developed real estate project in areas with no infrastructure, no transport, even no utilities, and above all, projects that were not built according to architect’s specifications, all in the name of finding a fool to sell it to.

Should we be optimistic that our wage will grow in perpetuity at two digit growth rates, and buy more? More brand new badly constructed apartments, more old communist era apartments, more BMW’s, more expensive trips? Should we strive to be more indebted and buy a third apartment or a third plasma TV? Or reinvent the subprime?

All in all, don’t you see as more important to optimism is professionalism? Both from the buyer and the seller’s part. Not wasting resources on producing low quality products which are marketed as high end?

I would like to see more from Romanian people qualities, and less from their negative aspects.

I would like to see more professionalism in bank’s clients, and I think so would you, and I would also like to see banks asking for more professionalism from their clients. But I would also like to see more professionalism from bank’s employees.

While regarding optimism, this is general as we should all be optimist, but we should also be realists. This is who we are, this is what we can. 2008 was a dream fuelled by debt. Debt we can take no more, but we will be able to take when our productivity (and professionalism) will increase. When we will, as a democratic nation, mature.

In the end, I must say that based on my experience with local banks, RZB is one of the most professional, which is also Mr. SvG merit, but it also has room to improve.

I will be more optimist when I will see more professionalism.
Thank you for offering me the chance of passing down this opinion.

Best regards,


Alexandru Ragalie May 28, 2010 at 22:48

a warm welcome Steven to the blogosphere. as a Romanian living abroad, and also as a person that has worked a lot with expats (even though with so many years in the country and a Romanian wife…you must be Romanian by now) i have come to appreciate the changing power of an “outsiders” opinion. keep up the postings, and looking forward to read about your sporting life as well (stories from your first Ironman, etc.).


Lavinia June 20, 2010 at 18:47

May be me, as a consumer, will get more confidence if you would be nice enough to share with us what is the strategy of the banking system in our country …!? Because, to be very sincere, I don’t understand if the banks have a strategy at all, and if they have one, I don’t feel like is the right one. You put so much interest in the consumer, but we are not a developed economy, we are an emergent market, and from my point of view, the banks should finance more the development of the economy first, the improving of the business environment, and after that they should be more interested in the consumer spending. You know, first you build something and then you admire it :). I know the banks are market makers for an economy and you can’t lie to me saying that you did’t understand this, or that this is not true :). So, do you think that having construction and commerce as growth motors, and being an emerging economy in the same thime, is the right strategy? Because, I really think that seeing at least enough new factories and enough new agricultural field cultivated would transmit to me, the consumer, much more cofidence than seeing a lot of new buildings (some of them empty) and a lot of new malls (full of imported stuff). It would be a happy moment in our history if we could see that finally the banks in our country have a strategy, and it is the right one. It’s like trading all sort of financial instruments: it doesn’t help to grow your portfolio today if tomorrow you lose some of it :). You have to develope a long run sustainable strategy, so that you would grow tomorrow also. Helping more the commerce and the housing market than industry and agriculture is not a long run sustainable growth. It ‘s my personal opinion. Btw, your the coolest banker around, al least you had the courage to support our disatisfaction about your activity. Keep it up! And may be you’ll tell us a little bit more about your strategy one day :).


SvG June 21, 2010 at 00:06

Lavinia, thank you for your comment. I will certainly write about the strategy of banks, at least the one I am running, in Romania.


Lavinia June 21, 2010 at 14:01

Thanx also, I’ll be following your blog :). Success!


MeTeo June 23, 2010 at 09:43

Aspen Insitute…. and you….here…promoting yourself and Aspen. Why have you sold your soul to the Devil ? Why are you involved in the masonry movement ? Do you like to kill other people (killing means to “buy” their dreams and mind) ?
Ooooh God…You see ALL, come and distroy what’s wrong and let the spirit and mind free as it was !
I’m sure you’ll stept over my comment or you’ll deny in other response.


SvG June 23, 2010 at 17:27

MeTeo, this is the strangest comment I have had so far. I honestly don’t understand what you are talking about. You are entitled to have your opinions about Aspen (in which I am involved) or masonry movement (in which I am not involved), but these are a bit off topic in these comments. And no, I don’t like to “kill’ or “buy” peoples dreams and minds.


Virginian August 15, 2010 at 19:19

Consumer confidence can be restored by regulating the banks. Imagine a 3 year period where mortgage rates are capped at 3%. Millions of homeowners could refinance and have more disposable income per month. Imagine if finance charges were eliminated and credit card interest rates were capped at 5% for that 3 year period. How many people might be able to pay off their debts and further increase their monthly disposable monies? This is where the “fuel” for the economic engine will come from. Of course, the banks will resist and fight this idea because that same money will not go in their pockets. But at this point, I say to hell with the banks. Greed has reached an unprecendented level in depth and breadth across that sector. It could be absorbed in the past because, percentage-wise, there weren’t as many greedy people dipping into the money well. But now, the proportion of money-grubbers has increased, as has the number of people maxed out on credit cards and mortgaged to the breaking point. People are pretty much tapped out.
It’s kind of a no brainer that the banks need to be beat down. If nobody will take risk and foreclosures/unemployment/business failures continue to increase, then everybody loses, including the banks.
Sustainable, consistent spending will not resume until financial pressure is taken off of the consumer. Lower interest rates on mortgages and credit cards could very well solve the problem in the long term.


physical therapist August 24, 2010 at 04:16

Great information! I’ve been looking for something like this for a while now. Thanks!


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