Lending and a Sustainable Economy

Today we bring you a talk about the relationship between lending and a sustainable economy.

Corina Cristea, 19.07.2013, 12:42

Prices of real estate in the US have registered the highest level in the past seven years, proving that Americans have grown more confident in the development of their national economy and are again willing to borrow money from banks. Analysts say that prices are very likely to keep growing, even if the pace will be slower. The Radio Romania correspondent to Washington, Ani Sandu, explains:

“Home prices have grown by 10%, according to a Standard&Poor’s report. Such price rising has been reported in all the 12 US cities covered by the report, in particular Los Angeles, Seattle, Charlotte in North Carolina and Tampa in Florida. Consumer confidence, too, has reached the highest level in the past 5 years, and despite the austerity measures taken this year, consumption has not dropped. To analysts, these are signs that the economy is finally starting to truly recover. Among the factors that have led to this positive trend are the constant growth of jobs, the drop in interest rates and also the fact that there are not too many new houses on the market.”

The US economy will grow this year and next at a rate of 1.9% and 2.8% respectively, reads a report drawn up by the Organisation for Economic Cooperation and Development (OECD), an institution that plays the role of adviser to the governments of the developed countries on economic, social and governance policies. Also, Moody’s rating agency has revised downwards the prospects regarding the US banking system from negative to stable, reflecting the continuous improvement of the operational environment and the diminishing of the number of risks facing banks as a result of increasing economic stability. Moody’s, which in 2008 cast a negative perspective on the banking system in the US now expects a GDP growth ranging between 1.5%-2.5% in 2013-2014 and a drop in the unemployment rate by 7%. The low interest rates will improve the performance of the US banking system in the coming 12 to 18 months. These rates will also trigger a drop in the rate of unemployment and will improve banks’ equities.

The 18 big American banks are now better prepared to deal with a severe recession in the US and a drop in the world economy than during the financial crisis that started in 2008, the US Federal Reserve has also announced.

The news, however, is not that good for Europe. The OCDE report has revealed that Euro zone economies will shrink this year by 0.6%. A recovery is only expected in 2014 when the Eurozone is estimated to grow by 1.1%. The risks faced by the European economies are not that many now, but a slow pace of reform implementation might worsen the debt crisis in the Eurozone, the report warns. The pace of recovery is hesitant and inconsistent across Europe, and the OECD believes central banks should boost efforts to stimulate lending to economies. However, a resumption of crediting is not possible unless there is sustainable economic growth, Romanian bankers say. On the other hand, voices from outside the banking sector say the lack of proper crediting hampers a solid growth. The latest forecasts on Romania’s economic growth stand around 2%, and the Vice-Chairman of the Romanian Banking Association, Petre Bunescu, says there is a tendency for everybody to resort more to saving. Petre Bunescu:

“ At least in the past two years, saving as a phenomenon has gained ground. Undoubtedly, people, faced with the crisis, have become more reluctant when it came to spending, and then saving is a good thing and quite visible. On the other hand though, savings at the level of the population and also at company level are limited. In my opinion, Romania, which will definitely resume its upward trend, will not be able to count on internal resources alone.”

One of the biggest projects that the Association is currently working on is focused on finding means of involving commercial banks in the process of authorising access to European funds, the President of the association, Radiu Gratian Ghetea has said:

“ The road from wish to implementation is not an easy one. Our wish, that of the banking community, is not to impose a system on all banks. We want to create a framework that all those who are interested in can join, and subsequently get involved in accessing European funds.”

To reach this goal, a specialised committee of the Association is collaborating with National Bank and Finance Ministry experts.