National Bank - loan delinquency rate in Romania 7%, compared to less than 3% in the United States

The National Bank of Romania has just announced that 2007 showed an increase of 27% in the number of borrowers who fell behind on paying back their bank loans. According to Valentin Lazea, the NBR’s chief economist the total number of defaults has gone from 296,000 to 352,000 during 2007. So what do you think? Is this bad or not? Well, we all know how hard it is to gather useful economic information in Romania. But let’s give it a shot: The Statistics Institute INSSE Labor Force Data shows that active urban population runs around 5 million in Romania and I suggest we assume all working urban people borrow money. Why am I using the working urban population as a proxy? Well, those living in rural areas have a much harder time putting together the paperwork required by a bank to borrow money. If the 5 million is a number much higher than the real one, well my point will only be stronger. In short, 350,000 is about 7% of 5 million so I would assume that is the delinquency rate in Romania. Now if you look at the delinquency rate in the United States, where literally everyone has some sort of credit you will see that it is now barely above 3% and it has never gone above 4% in the past 15 years. You certainly know that credit card delinquency is almost non-existent in Romania (since there are very few real credit cards), so if you were to exclude credit card delinquency from the U.S. rate you will arrive to about 2.5%. The delinquency data provided by the National Bank certainly includes real-estate, but real-estate loans generally have an even lower delinquency rate. Due to the subprime chaos, residential loan defaults shoot up to 2.7% in the U.S. in recent months. Federal Reserve Delinquency Rates