Banks cannot ignore the harshening of the lending terms and the heightened risk caused by the fact that Romania is "below the red line" of the group of investment grade countries, says Petre Bunescu (photo), BRD vice-president.
"We don’t sell potatoes, we lend money and messages like ‘there needs to be plenty to go around’ do not work here. The costs at which we get financing undoubtedly reflect the sovereign risk and the solution is to make efforts to get back above the red line."
The banker says that this is why the decline of the international euro reference rates (EURIBOR) cannot be found in the cost of loans granted on the local market.
"I have the added cost of CDS on top of the minimal mandatory reserve cost, which leads to a total entry cost of about 9%. Banks, however, are making efforts to lower their interest margins," Bunescu says.
On the other hand, he feels the deposit rate raise is natural in such times, although it does drive interests on loans up. "How can one consolidate the internal resources if one does not offer interest rates accordingly? I believe this pressure will gradually calm down."
As other bankers do, he believes the current tension on the market has a psychological component, as well, which amplifies the reactions of the clients that had been accustomed to better lending terms until recently.
At the same time, he says banks are not looking to put clients out of business or resort to compulsory execution against individuals who lose their jobs.
"We at BRD analyse the loan portfolio file by file, preparing specific measures for individuals, SMEs or big clients to go through this difficult period. If some SME had its exports go down, I’m not going to demand all the money back, but extend the maturity, do something to make debt service leaner. If an individual client has a seven-year loan and paid as stipulated in the contract in the first three years and has gone into technical unemployment, I cannot tell them I don’t care. It is only in extreme cases of chronic payment delays that we resort to compulsory execution, but not as a rule and it is not fair to generalise some isolated incidents that were rightfully sanctioned by ANPC (consumer protection authority i.e.), too," Bunescu explains.
He admits that banks do make mistakes in their dealings with clients, such as reporting some as bad payers because of fees of a few RON or because they paid an instalment at a lower exchange rate that they were used to, or by incorrect entries with the Credit Bureau.
"This is not the general line of working with clients," Bunescu says.
Prudentiality regulations require banks to set aside provisions for the entire amount of a loan that is 90 days past due, declare their client insolvent and move to compulsory execution.
The BRD official, who is also a vice-president of the Romanian Association of Banks (ARB), says that the National Bank has expressed willingness to agree to allow provisions for secured loans not to be made at the full value of the exposure but by deducting 25% of the collateral value.
ARB also requested an extension of the 90-day term, besides the deduction of at least part of the value of the guarantee.
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