The banking activity is risky and there are bad loans even in the best performing economies, Adrian Vasilescu, advisor to the governor of the National Bank of Romania (BNR) said yesterday, in a seminar on the business model of banks, organised by the Central Bank’s Financial Experts.According to Vasilescu, the base capital, the financial assets of banks continuously erode. “Furthermore, they become fewer and more expensive. For a bank to maintain the substance of its capital, it must achieve a profit rate above the inflation rate, on two conditions: that the profit is net and the whole profit is capitalised, which would mean that not one RON remains available for investments, dividends, provisions or reserves. If the bank does not increase its capital this way, it will be compelled to cap its crediting. Who will lose? The economy and the population, naturally,” he added.
Vasilescu advised the banks to make provisions, put “in store” important sums from their profit in order to cover the depreciated loans.In his turn, the chief economist of BNR, Valentin Lazea explained that Romanians pay the highest bank instalments of all Europeans, in average almost 20 pc of available incomes, meaning that banks will have to shift their policy on financing companies, where prospects are much better. Based on the presented data, the Romanians that took loans pay each month to the bank a part of their incomes that is almost twice that paid in France, Italy or Spain, and three times more than in Germany.He explained that, set aside the banks’ past errors, such as excessive lending to population, there are exogenous factors, independent of banks that hamper the crediting process now. The chief economist of BNR added that, at company level, the only sector with problems is the real estate, but the others – services, commerce and processing industry – do not seem over-indebted. Lazea believes that banks might reorient towards financing projects, giving as example the energy sector and the bridge-loans for the projects financed with European money. He also found other barriers to crediting, such as the fact that many local administrations are insolvent and “there is a culture of not repaying” the loans, stimulated by the legislation favourable to the debtor.
Referring to the crisis of Cyprus, the chief-economist said that there is a sufficient number of credit institutions in Romania so the population can make deposits under EUR 100,000, the maximum guaranteed sum. “Everybody has the possibility of depositing EUR 100,000 in the 42 banks. Who has more than EUR 4.2 M should invest (the difference) in the capital market, on the stock exchange or in investment funds,” Lazea added.
Citu: Romania gets closer to the critical threshold of bad loans
Attending the same seminar, analyst Florin Citu said that, past a certain amount, the effect of bad loans affects crediting and, naturally, the economic growth, hotnews.ro reports. “Romania has not reached the maximum threshold of bad loans yet, but is getting closer to it.” He also warned that, in terms of banking system profitability, it is obvious that something must be done, because a banking system that does not make profit is not a healthy one. “As objectives of the restructuring process, on a short term there is a need for restructuring, in order to eliminate the system or contagion risk. On a long term, a new governance model is needed. Plus, we cannot have a new phase of economic growth without restoring the confidence in the financial banking system,” the economist explained.
The number of bank employees diminished by more than 10,000 in the last 6 years
The number of bank employees dropped from 72,000 to 61,700 during 2007 – 2012, while the number of agencies and branches diminished from 6,550 to 5,700, ARB Vice-president Petre Bunescu announced during the conference, quoted by finantistii.ro. He explained that, although it was considered that the multiplication of electronic communication systems will bring the end of bank units, history demonstrated the contrary. “In the future too, the classic bank unit will have an extremely important role,” the ARB official stated.