Banks are starting to take on increasingly higher risks in the race for a bigger market share, with unguaranteed consumer credits potentially becoming the main weak spot, says Nicolae Danila, chief executive of the BCR (Banca Comerciala Romana).
"Everybody wants a market share, but the cost could be the deterioration of the quality of the credit portfolio. Certainly, the rate of non-performing credits is low, the percentage sounds fine, but we also have to consider the fact that actual volumes are increasingly larger, and if you see you are no longer getting back 10-50 million euros, you cannot remain indifferent," explains Danila.
The BCR chief executive believes the average collection rate for non-performing unguaranteed consumer credits is 15-20%. "If you don't react quickly when the first repayment problems arise, it will be very hard to recover the whole sum. Implicitly, this can also lead to liquidity problems at some point."
Danila says the current situation in America is a useful lesson: it reveals that the negative effects of launching an aggressive campaign to get large volumes of credits without a detailed analysis of the risks involved first, can occur at a later stage. Additionally, he believes the promising financial results seen in a first stage, due to the rise in revenues from interests for riskier credits, could prove misleading.
"We should be more concerned about a healthy increase in the volume of credits, even though there is a lot to catch up compared with the European standards, as data provided by the Credit Bureau already indicates a degradation in the quality of the credit portfolio," adds Danila.
According to data supplied by the Credit Bureau to the NBR (National Bank of Romania), overdue payments from individual clients totalled 430 million RON (137 million euros) in June, a 54% increase since the end of last year. The number of people with overdue payments to more than two banks has doubled in the past year, reaching around 67,000 in July.
The head of the BCR does not anticipate any problems in terms of the banks' involvement on the real estate market, given the significant growth potential of this market within the next few years. "There are many areas which have seen no sizeable projects as yet." However, he states the BCR is trying to give precedence with its funding to clients for real estate projects and indirectly to the constructions market, through the credits granted to the buyers.
Danila also estimates the banking market can sustain high growth rates until around 2014, i.e. until the time when the euro is adopted. In the first half of the year, assets in the banking system increased by 10%, to 190.5 billion RON (60.7 billion euros). Compared with June 2006, the growth rate stands at 31%.
The head of the BCR does not however believe it is possible for a player to "cause a stir" on the market, by a sudden, aggressive, increase.
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