Bankers fight to lend 1.4 billion euros to the state

26 nov 2009 Autor: Liviu Chiru

Ten local banks bought one-year treasury certificates worth a record 1.42 billion euros yesterday, 1.2 billion euros of which for themselves, feeding into the Treasury almost three times the amount the Finance Ministry had suggested.
In exchange for an attractive 4.25% yearly interest for euros, banks submitted bids to buy worth no less than 1.76 billions euros, revealing what a financing potential the banking sector has when there is no risk involved. The interest is only 0.75% higher than charged by the IMF.
The local market is thus proving capable of sustaining the budget deficit financing needs based on the amounts banks have placed with NBR, compensating the halt of foreign financing even though at a higher cost.
The high amounts invested by banks are a consequence of the recent decision of the central bank in an extraordinary meeting to cut the rate of minimal mandatory reserves in currency for the funding raised by banks from 30% to 25%. According to estimates on the market, the NBR released exactly 1.4 billion euros, which moved into the Treasury account to finance the budget deficit that remained at 5.1% of GDP in October, compared with the annual 7.3% target.
"4.25% is a very good yield. One could not have found one-year investments with a similar yield," a banker admits.
Dealers felt the yield for one-year securities could have gone down towards 3.75%, a level that would have covered the cost of attracting resources and a minimum profit margin.
"The price includes a premium of approximately 0.75% above the benchmark and CDS. As a premium for a local bond, it is a fair price, which objectively reflects both the interest of the Finance Ministry and of the banks'," commented Dorin Badea, head of UniCredit Tiriac Bank's treasury.
The state agreed to pay a higher premium to borrow a sizeable amount.
All thirteen primary dealers (banks that are bound to submit offers to buy for every government securities auction) participated in yesterday's auction, but only ten of them actually bought something: RBS Bank, UniCredit Tiriac, Bancpost, BRD, Banca Transilvania, Alpha Bank, Citibank, ING, BCR and Raiffeisen. The three that did not buy are CEC Bank, which does not have significant amounts of euros available, MKB Romexterra and Carpatica, two small banks.
The representatives of the Finance Ministry had previously met with the treasurers of the big banks on Wednesday to discuss the technical details of the issue.
"It was a gentlemen's agreement: the state pays 4.25% a year and banks participate with at least as much as the NBR freed up from minimum reserves this month," one of the participants told ZF.