Negritoiu, ING: Collateral has come to be worthless

Banks cannot count on collateral pledged for loans as the legal system is too protective of debtors and almost hostile to lenders, Misu Negritoiu, general manager of ING Bank, told Mediafax in the first public statement since the start of the insolvency proceedings of Flamingo group, with 17.5m-euro debt to the bank.

ING on December 9 notified Flamingo group on the initiation of compulsory execution of collateral (inventories) on the grounds of loan contract breaching, but one day later the retailer filed for insolvency to protect itself from lenders.

Flamingo group is the third largest player in electronic home appliances retail, with 200m-euro turnover in 2008.

"Most Romanian companies are trying to avoid, on the one hand, compulsory execution of collateral and on the other hand and the payment of loans they no longer need or support with their own operations. In calculating a sovereign risk the institutional, legal, capacity for compulsory execution of collateral also matters. And, in our country the system protects debtors and is almost hostile to lenders," Negritoiu said.

A rising number of bankers are complaining about the behaviour of entrepreneurs, who are protecting their money, even sending it abroad, instead of supporting their own firms, for which they file for insolvency.

"Banks will be facing trouble from this point of view: they are unable both to recover loans and foreclose upon collateral," Negritoiu says.

He considers 2010 will be the year of truth, when the way firms and banks share losses will be seen, after in 2009 the focus was on delaying payments.

The problems with compulsory execution of collateral are a risk factor for banks, which come to "inflate" the costs of loans granted, which is why such high interests are charged in Romania.

A repeat of the 2009 scenario, when the state borrowed aggressively from banks to cover its expenses, thus leaving very little money for the private sector, is the biggest risk for the economy in 2010.