Romania poses interest for non-performing loan transactions


The potential in 2015 is estimated at EUR 3 billion.

“The non-performing loans currently for sale on the Romanian market amount to 1 billion euros, but transactions in this segment could reach EUR 3 billion by next year as banks help attract new capital,” Josh Silver, director of Deutsche Bank London, said.
“I believe the Romanian market has potential where non-performing loan transactions are concerned. Selling such loans provides banks with new capital and allows them to handle basic operations. Romania’s banking system needs new capital but there is a lack of resources due to the high rate of non-performing loans,” Silver stated at the ZF Bankers Summit ’14. He emphasized the interest posed by the Romanian market for both Deutsche Bank, which has been analyzing it for two years, and other investors.
In turn, Mihai Ionescu, head of Deutsche Bank’s Romanian agency, is of the opinion investors are not very keen on making local investments, a problem for other countries as well beside Romania. “At least in the retail sector, high interest rates reflect non-performing loan and financing costs. It indicates the risk of doing business in Romania. When your local capital is insufficient, you must access global markets. This can be achieved if the country’s image is improved,” Ionescu explained.
Romania should borrow more from external markets, the Deutsche Bank director surmised. Even though one in five loans is non-performing, the banking system is well-managed by BNR through a strict regulation policy and everything else is a matter of optics, he went on. The banking system has to take out of the balance sheet a total of RON 6 billion in provisioned non-performing loans, in addition to RON 3.8 billion in loans overdue for over one year for which legal foreclosure procedures have not been initiated yet.
Provisions, a necessary evil
“Bankers are not ‘terribly excited’ about having to fully provision non-performing loans overdue for more than 360 days, as well as loans of insolvent companies, in order to take them out of the balance sheet,” Radu Ghetea, president of the Romanian Banks Association (ARB), stated in turn, adding that this is “a necessary evil.” “We must look towards the future and accept that cleaning out the balance sheets is necessary; it allows us to improve caution indicators and get a better head start in the lending activity. I couldn’t say we are excited about it, but my opinion as a bank director (editor’s note – director of CEC Bank) is that it is necessary and must be done,” Ghetea said further. The ARB president believes it is better for banks to sell non-performing loan warranty portfolios to specialized companies and focus on selling loans.
Bankers and BNR representatives are going over the possibility of applying a differentiated provisioning percentage for non-performing loans of insolvent companies for the duration of insolvency, given that recovery in this segment is below 10 percent. Ghetea stressed that the creditor balance will drop as a result of removing non-performing loans from the balance sheet, and they will have to be replaced with new loans. Consequently, the president said, this year banks should be shifting their attention from creditor balances to new loan volumes because statistics are “far from positive.”
Banking system clean-up results visible in 2015/2016
“The result of the measures aimed at cleaning up the banking system by removing non-performing loans from balance sheets will be visible in the 2015/2016 period,” BCR CEO Tomas Spurny said. “The high rate of non-performing loans makes Romania a unique country, but there is a ray of hope in our strong economic growth, so we must be optimistic,” he pointed out. The BCR official noted that some banks are planning to create a private mutual fund for all non-performing loans, but he was also doubtful as to whether this idea can be carried out in Romania. On the other hand, Spurny projected significant growth in the debt recovery business in the following ten years.