Banks lending hundreds of millions of euros to local authorities

Bankers have found clients to lend money to considering private lending is not recovering and T-bill auctions are not as successful as they used to be.
Town halls and county councils borrowed more than 1.4 billion RON (about 360 million euros) from January through March 2010, with four sector town halls borrowing 200 million euros in January alone, reveal the data published on the e-licitatie.ro website.
For instance, Sector 1 Town Hall borrowed 298 million RON (some 70 million euros) from BCR in January, the biggest loan granted since the beginning of 2009. The loan accounts for one quarter of last year's budget, about 1.2 billion RON.
Sectors 3,4, and 6 borrowed 116 to 279 billion RON from BCR the same month. Most of the money comes in form of investment loans, according to the e-licitatie.ro data, but sector town hall officials would not provide any comment on this over the phone.
Analysts say that financing granted to local authorities can be an alternative for banks at a time when private lending is almost frozen, though a short-term one. "Lending money to local authorities is a solution for banks, but not a long-term one, because repayment problems are starting to occur here, while interests are going down," comments financial analyst Dragoş Cabat.
In addition, town halls cannot borrow as much as they want, as they have a cap approved by the Finance Ministry to contain budgetary deficit. Usually, town halls draw their money from lines of credit from banks over several of years precisely to comply with the cap.