Romanian banks' retail lending conditions are too lax and a possible real estate market correction could cause problems particularly for those who took out loans in order to take advantage of the upward trend of real estate prices, considers Daniel Daianu, a member of the European Parliament, a professor of economics and a former finance minister.
"It's just a matter of time until we come to witness a correction on the domestic real estate market, but a correction does not mean a 'collapse'. However, I do not rule out that some of those who very easily took out loans to speculate, and not for real estate developments, might get into serious trouble," believes Daianu.
Together with Laurian Lungu, a macroeconomist at Cardiff Business School, Daniel Daianu conducted a survey on the global financial crisis, identifying the shrinking transparency posted amid the development of increasingly more sophisticated products and the lack of regulation as the main causes that triggered the crisis.
The survey has been presented recently during a workshop organised at the European Parliament.
Daianu finds bankers' arguments about the restrictiveness of internal prudential norms "unconvincing", quoting the example of Societe Generale, which suffered a 4.9 billion-euro loss in the wake of some unauthorised operations of a trader and which thus pointed to control and risk management loopholes. On the other hand, he underscores that one of the main arguments sustaining the growth potential of lending on Central and East European markets, namely the still low level of financial intermediation (the share of non-governmental lending in GDP), compared to West European markets, is misleading.
According to NBR estimates, at the end of last year financial intermediation climbed to around 37% of Gross Domestic Product, a level close to that of Poland, but much lower than the euro zone average, which exceeds 100%.
"Whereas in Western Europe it took the volume of loans in the economy, as a share of GDP, several decades to reach the current level, the fast growth pace registered in Central and Eastern Europe may prove destabilising for local banking systems," warns Daianu.
Under the circumstances, he considers even a tightening of NBR rules on retail lending may be necessary.
On the other hand, Daianu says NBR needs to also regulate more sophisticated investment instruments, whose development on foreign markets led to the current financial crisis.
He says that though financial innovation has spurred financial intermediation, another effect of this has been lower transparency, which eventually eroded confidence in markets and the economy.
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