Vladescu: We are fighting banks because they are asking for exaggerated yields on T-bills

Banks do no have solid enough arguments to justify the substantial increase in the yields they are asking from the Finance Ministry during T-bill auctions, since the National Bank has not raised the interest rate and the sovereign rating has not changed, either, Finance Minister Sebastian Vladescu says.

"Our decision to turn down the offers during successive auctions was generated by the quite heavy pressure coming from banks. Given how they raised yields in a matter of a weeks, without there being anything connected to a trend of NBR's refinancing interest or the sovereign rating, we could not have reacted in any other way. We are not desperate, we have money in the Treasury, so we are fighting banks. They have their arguments, we have ours, it remains to be seen which are more powerful," Vladescu told ZF in an interview.

This is how he explains the three failed T-bill auctions in four weeks, with the Finance Ministry blaming "the unacceptable level" of the yields requested by banks each time. In April, the Finance Ministry had managed to pressure treasury certificate yields down to less than 6%. Now the yields requested by bankers stand at almost 8%.

Vladescu admits banks can use the turmoil created by the situation in Hungary as an excuse, as well as the motion of censure the Government is facing, but does not believe there are enough reasons for the yield hikes, as long as the interest at which they can get cash from the NBR has not changed.

"We say we have an extremely sound programme, which should give them confidence. Banks need us, too, and we are ready to play this game," Vladescu said, throwing down the gauntlet.

The Finance Ministry had announced it had scheduled T-bill issues worth 4.6 billion RON (1.09 billion euros) for this month, but the first two auctions failed. The issues subscribed in May amounted to 2.53 billion RON, compared with the announced value.

The inflexible position of the Finance Ministry towards the higher yields requested by banks can be explained by the fact that the Treasury has a buffer fund of about one billion euros created at the recommendation of the IMF after the eurobond issue in March, precisely to be able to navigate such times of pressure from banks. At the same time, the prolonged decline in private lending leaves banks with little choice for placing their money so that they end up looking at T-bills at some point.

Over the last few weeks, bank dealers have imported the negative sentiment from the Western markets, also reflected in a new increase in the rates of the CDS for Romania to over 300 basis points. Thus banks are currently lending each other RON on the interbank market at 6.8% for three months (the Robor value calculated by the NBR on Friday), more than two percent higher than the 4.7% reached in April.