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

2008-01-29T06:17:00.000+02:00

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

The reasons why I started this blog

2008-01-16T19:18:00.000+02:00

To save you time I'll make it short:
I have a lot of friends and relatives asking me often what do I think about the Romanian economy, about the real estate prices in Bucharest, about the job market, and of course what currency is best for savings. I certainly have strong opinions about all these subjects and I often express my conviction that all of them are fully interrelated.

However, I often get replies that are contrary to my opinions and to my mind are contrary to many laws on which economics is based. My common sense tells me that those replies are based on nothing but thin air. While I cannot claim I am an expert on Romanian economics, I do believe I understand the macro forces within an economy better than most of my Romanian friends and relatives.

Eventually, at the peak of one of these discussions, I realized that there are high chances I will be proven right soon enough, whereas the other person will be proven wrong. Being that I am still a full-time student and have no intention to bet money on my opinions, I found a better way to put my thoughts on paper and then hold the paper high. Blogger.com has given me this opportunity.

Beginning tomorrow, I will post my thoughts about the evolution of the Romanian economy once a month, on the third Thursday of the month. I am sure it will be a lot of fun. And if, in the end, it turns out I was right more than 50% of the time, I will be more than happy ;-)) See ya soon.

Romanian Economics Seen from the Outside

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

The reasons why I started this blog