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February 1, 2023

Banks’ role in economic upturn (II)

Banks’ involvement continues being seen by experts as of major importance for the return to economic growth, predicted at 1.5-2 per cent GDP this year.

Referring to the banking system, National Bank of Romania (BNR) Governor Mugur Isarescu recently said the system is expected to get consolidated amid banks access to liquidities making credits available again. “We will take the measures needed to capitalize the banking sector. We will improve banks’ access to liquidities, including through refinancing. The monetary interest rate will take bank liquidity into account. This is a signal for banks to resume prudent credit practices,” Mugur Isarescu told a press conference on inflation report.

“The liquidity glut in the Romanian banking system is of RON 1-2 bln. I say it’s better to have a surplus rather than a deficit of liquidity. The liquidity oversupply is concentrated but at 4-5 banks,” the central bank top official also said. BNR’s gains of EUR 330 M in 2010, three times less that in 2009, were expected.
“Discounting previous losses covered in 2009, the profit is comparable to last year’s. To put it differently, the taxes paid into the state budget were by and large the same,” sources with the central bank told Mediafax. In 2009, the central bank posted a profit after tax of RON 4.6 bln, and net gains only amounted to RON 300 M. Under law, the National Bank transfers 80 per cent of its gross revenues into the state budget.

Yet, nowadays, when return to growth keeps us waiting, the banking system sparks optimism in Romania. President Traian Basescu told the recent Gulf Cooperation Council – Romania business forum that that the banking system stood its ground during the crisis. “There is no bank on behalf of which the Romanian state had to step in, we therefore have a sound banking system, and this crisis period stands proof to it,” Basescu said.

Solutions are still being sought, aimed at keeping the banking system afloat. Earlier this month, Government said it has no intention to put the Romanian Savings Bank (CEC) up for privatization, yet uphold the capitalization of the profit made in 2010. Speaking on the issue, Finance Minister Gheorghe Ialomitianu said talks are being taken into account, also with European Commission officials, on what the Romanian state should do in this respect. Privatizing the CEC would be a mistake, given the crisis would lead to the bank being sold for a price lower than that likely to have been obtained in 2006.

“My predecessor, Eugen Radulescu, said that the selling price for the CEC is now lower than that in 2006. I agree with his view, given today’s market is different. If you examine the issue and see how much the bank has grown over this period, you can see ho much is worth, yet there is no such thing as a market value since there’s no market to start with. Institutions such as the European Bank for Re­construction and Development (EBRD) or the International Financial Corporation (IFC) cannot get started unless there is a privatization plan. The Romanian state has clearly stated privatization is out of question and I clearly say privatization would be a mistake at this point in time and will not have a happy ending for the Romanian state. I don’t believe the state is in such absolute need to sell a stake in the CEC. We will seek to consolidate the bank,” Radu Ghetea, CEC Bank President, said. Official sources said that government would try to increase the CEC Bank capital by drawing institutional investors, very much like it did when it privatized the Romanian Commercial Bank (BCR) six years ago, as it finds current international market conditions unattractive for selling the bank during the next agreement with the International Monetary Fund (IMF).

In a speech before an attendance of economy students at the Open Gate Days in Sibiu and Alba Iulia last year, Univ. Prof. Dr. Nicolae Danila, a BCR former executive president and current member of the BNR Board of Administrators, emphasised that, during recession, the banking system is one of the pillars for assessing the risk associated with readjusting asset price. Given its area of operations, the banking system provides confidence, through credits, to certain activities, which in turns leads to a readjustment in the relative price of assets. “Reallocating asset resources by readjusting prices stands at the root of economic growth (…), yet, the banking system cannot do it itself. A mixture of economic policies brings the greatest contribution to diminishing economic uncertainties,” he said on that occasion.

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