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News 09 May 16

Controversial Romanian Mortgage Law Unsettles Banks

Deposits for mortgages in Romania have doubled ahead of the introduction of a controversial law allowing people to write off their unpaid loans by handing over their property to the banks.

Cristina Bucureasa
BIRN
Bucharest
Photo: olx.ro

The law that allows mortgage debtors to clear their unpaid loans by signing over their property to the country’s banks, which comes into force on May 13, has already sparked a reaction from the banks, which have increased the financial deposits required to secure a mortgage.

Before the law was approved by parliament, deposits were between 15 and 25 per cent of the total value of the loans.

That has now increased to as much as 45 per cent, after most of the banks decided to hike the amount required to secure a loan.

The second biggest Romanian bank, BRD Groupe Societe Generale, increased the deposit for mortgages from 15 per cent to 35 per cent.

Raiffeisen Bank was the first to increase its deposit requirements, followed by the other top-ten Romanian banks, including CEC Bank, Bancpost and Alpha Bank.

The controversial law has also been held responsible for the fall in the value of of the national currency, the leu, against the euro, to a level that hasn't been seen since February this year.

Analysts predict that the fall will continue.

“As risk aversion at the global level continues alongside internal fears, the leu should further depreciate, possibly reaching 4.53 lei to one euro in the coming weeks,” a report by ING Bank analysts suggested at the end of the last week.

The European Commission has also warned about the negative impact of the law.

“On the domestic side, downside risks to the macroeconomic outlook have increased significantly due to the uncertainty caused by the adoption of a debt discharge law by parliament on 13 April,” said the Spring 2016 European Economic Forecast issued last week by the European Commission.

“This law could have a substantial negative impact on investor confidence and credit outlook aver the forecast horizon and beyond,” the report added.

The law’s initiator, MP Daniel Zamfir, has said the initiative aims "to help families who bought homes and who have had real difficulties in paying their mortgages, not real estate speculators".

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