Romanian central bank BNR prides itself on the decline of ROBOR rates on the money market, while bankers talk without batting an eye about making leu-denominated loans more expensive because “market conditions demand it.”
The costs of non-performing loans, of attracting deposits, administrative costs, all block the channel between the money market and the credit market.
The state has consolidated its position as client of choice for the banking system, a client so treasured that it constantly received higher-value loans than it had scheduled, while the volume of private-sector loans in Romanian currency fell from one auction to the next.
In fact, the Finance Ministry was favored over the private sector for the entire duration of the crisis. The private sector had to make do with officials’ declarations of good intentions.
The central bank itself intervened on various occasions – both through technical operations (such as cutting reserve requirements on foreign currency liabilities) and through direct talks with bankers – so that the state could continue to get the money it needed at reasonable costs. The interventions, sometimes led by governor Mugur Isarescu himself, bore fruit, and the Finance Ministry was not short on cash, no matter how tough the recession.
But the central bank was not nearly as successful in persuading bankers to grant more leu-denominated loans to private-sector clients. In 2010, the volume of leu-denominated loans fell by RON3.4 billion, while the volume of government bonds bought by banks exceeded RON13.2 billion. In 2011, the volume of leu-denominated private sector loans barely recovered to RON80.6 billion, a similar level to the January 2011 level, while the state got a further RON13.6 billion through government bond issues.
The state was also the one to gain the most from the central bank’s easing its monetary policy, which started in late 2011 and continued both by cutting the key interest rate from 6.25% to 5.5%, as well as through weekly cash injections through repo operations (lei against government bonds).
So, while the central bank continues to help the state cover its cash needs, all private clients are left with are the messages sent by the governor in his many public appearances at the BNR. But the only responses to these messages are cynical retorts from commercial bankers who don’t hesitate to say that not only are interest rates on leu-denominated loans not going down, but they are in fact rising because such are the market conditions, i.e. the cost of attracting deposits and of non-performing loans, and banks have an interest rate margin that they have to take care of.
“Lending got off to a bad start in 2012,” BCR analysts say, noting that leu-denominated private lending fell 1.2% in January against December. Lending in local currency fell by RON1 billion, to RON80.6 billion, while the volume of government bonds in banks’ hands climbed by RON5 billion, to RON65.1 billion.
Governor Isarescu points to the significant decline of interest rates on the interbank monetary market. And six-month ROBOR rates are indeed below the 5.5% a year key interest rate. But who stands to gain from this if the volume of loans in local currency is falling? The Finance Ministry does, but not the private-sector clients of banks, who are accused of not wanting to take out loans at the current rates.
All the private sector can do is wait until it can experience the indirect effects of the central bank’s efforts to fund the state, i.e. for the Finance Ministry to make payments, further reduce arrears that should have already been down to zero, and pay money for investment projects. This money should ultimately end up in the real economy. The Finance Ministry reported RON2.5 billion in investment spending in January 2012, up 2.5 times against January 2011m, but as long as private lending is not working many companies cannot wait anymore for the state to pay its bills, with recession lurking around the corner. (EUR1=RON4.3535)
(English version by Daniela Stoican)