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The Romanian banking sector funds 90% of Romania’s economy

The Romanian banking sector funding 90% of Romania’s economy continues to undergo difficulties after six years of recession. A problem facing that sector is the lack of structural reforms, reads a recent analysis conducted by Ziarul Financiar daily paper.


Administrative costs, consisting of employees’ salaries or office rents, have impacted interest rates for loans, which although they have gone down recently, are still very high against the monetary policy interest rate, which was adjusted at 2.75%. During the economic crisis, one of five loans in Romania was underperforming. The infrastructure of the banking industry reached its development peak in 2008, when the entire network of territorial branches totaled nearly 6,600 offices and over 71,500 employees.


Six years after the economic crisis had gripped the economy, some 1,200 offices were shut down and 13,600 employees were made redundant. The effort of bringing underperforming loans in the black, in addition to other pre-emptive measures linked to streamlining the banking sector ahead of the quality assessment of bank assets next year, have translated into many difficulties for banks.


The banking sector will report losses of about 450 million euros, according to estimates made public by Nicolae Cinteza, the head of the Surveillance Division of the National Bank of Romania. “On September 30, Romania registered losses standing at 360 million euros. It was a normal figure. The huge provisions reported in the third quarter led to that loss. And more is yet to come”, Nicolae Cinteza also said. The official went on to say that the level of underperforming loans dropped from 22.3% in April to 15.33% in September, while the non-performing loans provision coverage stood at 66.22%. Here is Radu Gratian Ghetea, the chairman of the Romanian Banking Association: “In my opinion, 2014 will report significant losses.


The National Bank has already announced major losses at the level of the entire industry, and we had barely started the so-called cleaning of balance sheets”. The loaning of the private sector still accounts for a negative annual percentage, despite the positive dynamics of the national-currency-based loaning.


Central Bank Governor Mugur Isarescu explained that the reason why total crediting did not recover had nothing to do with the cash made available to banks. ”Romanian banks right now even have a surplus amount of liquidities, in national as well as foreign currency. So it’s not the shortage of money that can be viewed as the main cause of the slowing down and even the decrease of hard currency loaning. The evolution of loaning mainly has to do with all those structural changes, with the situation of underperforming loans, with a certain state of mistrust in the relationships banks have with the clients. We’ve been trying to allay that state of mistrust, through positive monetary policy measures as well as by providing a stable economic and financial climate. So we‘ve taken action at more than one level, simultaneously.


“ In late October, the Central European Bank made public the results of the stress tests 130 big European banks had been subject to. Some of the banks that failed to pass the test are stockholders in banks in Romania. However, here is what economic analyst Aurelian Dochia said, regarding the situation in Romania’s banking sector.


”Although there are banks whose shareholders are among the banks facing problems at European level, from Greece, Italy, and so on, the Romanian banking system, however, is made up of banks that are independent. If we take the amount of their own capital into account, and if we look at their balance sheet, they are totally independent from the mother-banks, being supervised by Romania’s Central Bank. So there is no outright link and anxiety regarding the situation of those banks, as, judging by the data we have and which are centralized by the National Bank, banks in Romania have a very good capitalization level, the average level standing at more than 15 per cent for the entire banking system, which accounts for significantly more than the demand at European level, and that is the reason why I said there was no need to worry. The only thing likely to impact Romanian banks might occur when one of the Romanian banks is in need of extra capital for an emergency situation and should ask the mother-bank for that extra capital. In such a situation, one of the European banks facing problems may not have that extra capital required for the bank in Romania. But then again, as I said, Romanian banks at the moment are well capitalized and there is no such risk of a sudden need for capital to be required from mother-banks.“ Banks in Romania will be part of a comprehensive assessment exercise, in October 2015 most likely, ahead of being placed under the Single Supervisory Mechanism, established by the Central European Bank.(Source: balkans.com)