Romanian banking system

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In Romania, the banking system will return to profit starting this year, but to a lesser extent than in most other Central European countries, a study by the consulting company Deloitte shows. The study estimates that banks in our country will focus on maximizing net profit, and will make a big bet on the effective use of uncompetitive assets. Recall that last year the banking system in Romania received losses of about 1 billion euros in total. Of the last six years, four years have been with losses, and two with profits. «In euros, the losses amounted to one billion 600 million. If the banks had not made constant efforts, losses would have led to a loss of system strength, but the Supervision Department of the National Bank of Romania conducted constant monitoring and it managed to attract irrevocable capital from shareholders, who had to suffer losses,» said the First Deputy Governor of the National Bank of Romania, Florin Georgescu. It showed that over the past 4-5 years, bank shareholders have contributed capital worth one billion 800 million euros, more than the net losses since the beginning of the crisis. To this amount should be added loans for a period of more than 2 years – more than 400 million euros. «The system is solid, but it cost a lot of effort on the part of banks, owners, to maintain the quality of the banking sector at the appropriate level. These costs were borne by the shareholders,» Florin Georgescu added. On the other hand, according to the Governor of the National Bank of Romania, Mugur Isarescu, three trends are outlined for the banking sector: moderate credit growth and credit quality, increasing the importance of financing from local sources. It should be said that in the first decade of May, the National Bank decided to reduce the refinancing rate from 2% to a new historical minimum of 1.75%. Mugur Isarescu appealed to banks with a recommendation to be careful about reducing interest rates for deposits, as they will need money as lending returns.

«In my opinion, some banks have reduced interest rates more than they should, but they also have an excess of liquidity. They should be careful now, they should not think that the excess of liquidity at the moment will last for a long time. As loans in lei grow, this liquidity will disappear. Other banks were more cautious, kept the interest rate for deposits above 2%, and we approve of their vision.»

Of the 40 banks in Romania, only 4 small banks give interest rates above or equal to 3%.

In addition to reducing the refinancing rate, the National Bank decided to reduce the minimum mandatory reserves for the leu from 10 to 8%.

Economic analyst Radu Krecun:

«Both measures can be included in the category of monetary policy relaxation. The idea is that, on the one hand, lei would be cheaper, and that there would be more of them. The reduction of banks’ mandatory reserves will lead to additional liquidity of about 3 billion lei (approximately 675 million euros) in the interbank market, and banks will be forced to look for ways to make this money work.»

The banking system contributed to Romania’s economic growth, but the level of impact on GDP was limited by the lack of budgetary discipline of companies and improper allocation of funds at the bank level, according to a study by the consulting firm Deloitte, commissioned by the Council of Banking Employers in Romania. Due to the departmental fragility of the banking system and the economy as a whole, the level of lending is very low, and the financial contribution of shareholders was necessary. According to the analysis, lending to companies will see an increasing trend this year, after a decline has been registered in recent years. Professor Daniel Deeanu, a member of the Board of Administration of the National Bank of Romania, says that our country has registered economic growth close to its current potential — 3%, based on excess liquidity in the market after the recession.

«Always when emerging from a deep recession, in Latin America, Asia, and Europe, countries have experienced economic revival without the need for special lending. Why? Because there is liquidity in the economy, and this inactive liquidity, when it begins to move, can provide a greasing of the wheels in the economy. In the case of Romania, there is something else that is not found in the rest of Central and Eastern Europe: budget execution was very deficient, but we registered economic growth. So, this is an additional argument: when the economy comes out of recession, if there is liquidity in the system, it can work for a while.»

Daniel Deyanu warns that, however, economic growth cannot be separated from bank financing for the medium and long term, because in Romania the capital market is insufficiently developed and cannot fulfill its role as an alternative to financing with bank loans.

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