The Romanian Mortgage Market: Where to? A Bancpost perspective

The pure mortgage market has not even had time to mature before crisis reaching around 7% of the GDP (with estimated externalized portfolios), still low compared to Central Europe, where the share of mortgages in the GDP is 30% or Western Europe, more than 50%. This means that that most of these loans in Romania are secured with the primary residence of the customer, therefore having a low risk in a country where the house is the primary investment, asset and dream of any family. However, it takes many years and minimum one financial crisis to decide if a mortgage portfolio is a good portfolio or not. The fact that the National Bank of Romania kept a close control on the lending market during the booming years and that we had the instruments to check our customer’s credit (reliable credit bureau information) postponed the maturing but prevented the over-indebtedness of the consumers which could have deepened the crisis.
Although both the demand and supply of mortgage loans plunged in the first half of 2009, in the second half and the first half of 2010 we have seen a slight recovery and even increase of the market fueled by the “First House” government-backed mortgage program. Also, we have seen a growth of the home equity market – especially focusing on refinancing and debt consolidation.
As far as Bancpost mortgage and home equity portfolios are concerned, we fared at least as good as the market and we never stopped offering loans even throughout 2009 and with a clear come-back message in 2010: two important advertising campaigns. Bancpost is determined to keep and consolidate its position as important player on this market.

Is Bancpost part of “Prima Casa” program? How many applications has the bank received under the program?
Bancpost is part of the “Prima Casa” Government backed program and in 2010 we have received more than 25 million EUR worth of credit applications in both phases of the program and we disbursed approx 10 million EUR loans, and the numbers keep growing. We have treated Prima Casa not as core product, as other players did, but as a must have choice in our portfolio of mortgage products. Bancpost has a complete offer of such loans for individuals, with a transparent contract even anticipating the Ordinance 50, keeping a continuous focus on the mortgage products and even more on the mortgage customer who is in relationship with us for more than 25 years on average.

However, the Bank chose not to promote Prima Casa in the first campaign, “Home for Sure”. Why is that?
“Sigur Acasa” or “Home for Sure” is an innovative product on the Romanian mortgage and home equity market. It addresses the crisis-related fears of the Romanian mortgage consumer, among the reasons for which the market had negative growth for a long time: unemployment or loss of income, fears worsened by the measures implemented recently by the Government in order to reduce public sector expenditures, and increase of the interest rates. The product tackles both fears: it is a 3-year fixed rate mortgage product combined with a free unemployment insurance that covers 2 events of unemployment. Also, the customers benefit of a free life insurance for the life of the loan. We believed it was the right time to promote such a product, and we were right.

Speaking about the crisis: what is the Bank offering to its distressed customers in order to help them overcome this difficult period?
The bank has a complete package of solutions for distressed customers, a package that we implemented already in the first half of 2009. In the beginning of 2009 the crisis was more psychological. Now, the real economy and the private sector employees and entrepreneurs have seen hard times for more than one year, and also it is the turn of the public sector employees to suffer the effects of the crisis. We are not over yet, as I said it many times, therefore we need to have solutions in place for those customers who are willing but unable to pay their mortgage debts. We have restructuring solutions, giving our customers the opportunity of paying a lower installments during one year and amortizing the overdue amounts in 12 interest-free installments, and we are preparing a second restructuring scheme for customers who already benefitted of a first restructuring and have not recovered yet. We also have other solutions, we can do currency conversions especially for customers with CHF-denominated loans, internal refinancing of the loans, tenor extensions, and we try to customize these solutions to the particular standing of the customer, everything with minimal bureaucracy. Moreover, we have a special solution for customers with unsecured consumer loans who are distressed or want to lower their installment: by bringing a property as collateral, they can lower their payment by 50% and we even finance the cost of the mortgage registration, with no financial analysis required and fast implementation.
What is very important is for customers to understand that they need to keep communication with the bank if they face difficulties. Solutions are offered by banks to customers who are willing to cooperate and communicate with the bank. If the customer chose not to communicate, then the only solution to recover the loan is foreclosure on his/her assets, and Bancpost has started taking such actions quite often in 2010.

You mentioned earlier the Ordinance 50 regulating private individuals loan agreements. Has Bancpost become compliant with the Ordinance? What will be the effects of this Ordinance on the mortgage market – will we see the number of refinanced loans increase due to the removal of prepayment barriers?
For new private individuals loans, Bancpost is fully compliant with the new Ordinance, and we have never stopped the new loans processing in order to adjust our contracts and systems. We took advantage of the transparency initiative implemented for mortgage and home equity loans already in 2008, when we saw our portfolio increase by more than 60%, which prepared our systems and agreements to a great extent. For the portfolio stock, loans generated in the past, we have been offering customers the opportunity of switching to a transparent rate (from base rate to Euribor/Libor/Robor + spread type of interest) already since 2009, with no cost and no financial analysis / scoring required, just a simple request and an addendum signed by the customer. We are working hard and we believe we will be able to meet the deadlines set by the law.
The prepayment fee removal (now 0% for floating rate loans) might increase the number of customers who wish to refinance their facilities in better terms; nevertheless, all banks have stricter credit criteria now than in 2007-2008 and the property valuations are not favorable to such moves on the customers’ side. However, we take it as a challenge to improve our services and products in order to retain the customers, and so far we have been very successful. Our mortgage and home equity portfolio has been growing on a net basis every month in 2010 and that is due to the fact that we are able to grant more new loans and to retain effectively the existing customers by offering them good terms.
We consider the implementation of the European directive via Ordinance 50 as quite strict, even compared to other European countries, but since banks did not adhere to a voluntary code of conduct, this was the only solution to become aligned. What is still to be corrected or clarified is why the regulator chose to cancel most of provisions of the Mortgage Lending Law 190/1999, including that of registration of mortgage on future property. As a pioneer in mortgage lending at that moment, I considered that being able to register a mortgage on a future construction was a big leap ahead; now it seems we go back many years, with negative effect on customers wishing to build a new house with a mortgage loan.