The indebtedness of households in 2018 reached the level of 9.2% of GDP, and in 2019 it will approach 11% of GDP, which is 5 times more than 15 years ago, writes in his blog IDIS Viitorul economist, Veaceslav Ioniță.
However, the indebtedness of Moldovan households is 6 times lower than the European average and almost 2 times lower than the average of the countries in the region.
The basic customer of the entire financial sector
In fact, after the 2014 crisis, individuals became the basic customer of the entire financial sector and this trend will continue in the coming years.
As a consequence, the degree of indebtedness of households will grow closer to the regional average and most likely this year or maximum in 2-3 years, the portfolio of loans offered to individuals will exceed the credits offered to legal entities.
Households contract loans for:
- Leasing for the purchase of cars;
- Loans for starting a business.
According to the aggregate data from the National Bank, the National Commission of the Financial Market and the National Bureau of Statistics, in 2018 households have borrowed about 4.8 billion lei, which is four times more than the average of the last years.
After 2014, when banks significantly reduced their lending to economic agents, individuals became the preferred client of both the non-banking and banking sectors.
As a consequence, if by 2014 the lending to the natural persons by the financial institutions constituted 15% of the total loans granted, the rest being returned to the legal persons. Then, in 2018, the share of individuals rose to 40% of the entire loan portfolio.
The main creditor of the Households remains the banking sector
With a 53.8% share, followed by the MicroFinance Companies which hold a 36% share. The microfinance sector has considerably increased the lending portfolio of individuals in the last 5 years, from 1.4 billion lei in 2013 and a 20% market share to 6.7 billion lei in 2018 and a market share of 36%.
As a result, microfinance companies in this period won the battle in first of the banking sector, even though it increased its loan portfolio from USD 4.9 billion in 2013 to USD 10 billion in 2018, yet its market share has decreased by from 69% in 2013 to 53.7% in 2018.
For 2019-2020 we anticipate the following developments
- The loan portfolio offered to individuals will increase significantly, with a minimum of 4.5-6 billion lei annually. This will have two major consequences: a) The degree of indebtedness of the Households will increase 1.5-2 percentage points annually, which means reaching the level of 15% of GDP in the next 3-4 years, a level comparable to the regional average, b) The loan portfolio offered to natural persons in 1-2 years will exceed that offered to legal persons.
- Most likely in 1-2 years, the non-Banking sector will outperform the banking sector in lending to individuals.
- In order to maintain market share and attract individuals, banks will develop various attractive banking products for individuals, especially in the field of consumer loans and mortgages.
Certainly, Moldova is actively involved in the era of consumption based on financial loans, and financial institutions must accelerate the launch of its products on the market, in order not to lose market share that will grow strongly in the coming years.