BCR, which is controlled by Austrian Erste, has narrowed its loan portfolio by over 2 billion lei in just three months, from July until September. This is the biggest quarterly decline the bank recorded in the past year in terms of the volume of financing– it fell by RON6.2 billion (EUR1.4 billion), to RON48.8 billion at the end of September.
The biggest bank on the market says it is concerned about the fact that the restructuring program has deepened and about absorbing the huge portfolio of non-performing loans, while new business is secondary and fails to offset the volume of older loan repayments.
BRD, the local subsidiary of France’s Societe Generale, has cut its stock of loans granted to the Romanian economy by almost RON2 billion in the past year, to RON34.4 billion in September. Unlike in the case of BCR, the volume remains higher than two years ago, in September 2011. The declining trend is driven by the corporate segment, where production of new loans does not match loans that are maturing.
After becoming loss-making in 2012, BRD in turn had to focus more on risk management and efficiency issues rather than on current business.
Basically the top two banks in the system are busy reorganizing and restructuring their activity specifically at the time when the Romanian economy needs easier access to financing. And business suffers as a result: the overall volume of loans from BCR and BRD has fallen by RON8.1 billion in the past year.
“We see the big picture as central bank and we are saying the majority of banks’ indicators – profit, solvency, even the ratio of non-performing loans – depend on the volume of loans. So, if they have a longer-term outlook, it is in their interest to lower interest rates as fast as possible up to the limit where demand is revived,” is the message sent to the banking community by central bank governor Mugur Isarescu, after BNR lowered its monetary policy interest rate to 4% a year, opening the way for a new cheapening of loans in lei.
When will market leaders reverse the lending decline?
BCR and BRD have lately stood out not just by cutting their exposure to the economy, but also through less transparency. The managers of the two banks have been sending dry figures – their quarterly results, with no indication as to the steps to be taken or a timeframe for restarting lending.
Erste Group, the majority shareholder of BCR, recently reaffirmed its expectations of ending 2013 with a profit, when it released its 3Q results. At the same time it continues to have problems with its corporate portfolio, so if BCR is to return to profit for the full year, the figure will have to include the one-off release of fiscal liabilities at the end of 2Q. This move has already positioned BCR as the most profitable bank after the first nine months of the year, with a net result of EUR127 million, a level hard to match.
Apparently the management has hit its main target – of returning to profit after the bank’s record loss of RON1.2 billion in 2012 – but the restart of business has yet to be seen and because bank is unwilling to take on new risks, may companies no longer get extensions of their credit lines.
The Austrian shareholders cite as a reason the fact that lending in Romanian currency is limited and say BCR will continue its focus on generating additional revenues from trading services and from current account packages on the segment of retail clients.
The effects of the bank’s restructuring program are expected to fully show in 2014, so until then there is not much chance of restarting lending.
BRD was again loss-making in 3Q and its nine-month profit was down to around EUR11.5 million. The bank, which formerly held the title of ‘most profitable bank on the market’ had to incur new costs with non-performing loans. The release published by BRD mentions the decline by 11% in the volume of corporate loans, without further explanations and commentary. And the bank does not give any indication as to whether a trend reversal is to be expected.
No signals about the future are coming from Paris, either. Societe Generale told investors about solid growth of deposits attracted in Romania when it presented nine-month results. BRD’s deposits rose by almost 7% against September 2012. BRD’s parent bank also mentions the fall of lending “in an environment that remains difficult”. There is no mention of a rebound for the lending market.
BCR and BRD together had loans accounting for around 37% of the entire stock of private-sector loans in the Romanian banking system. Given their strong positions, the two banks’ policies, of reducing their lending exposure, end up dictating the market’s direction. But they still have a responsibility to finance the Romanian economy, which is expected to see a rise of over 2% this year.
However, Romania’s economic growth is largely generated by circumstantial factors and there is a need for new investment projects that will ensure a steady rise if the agricultural year is poor or if export markets in the euro zone decline.
Banca Transilvania promises to continue to boost lending, but this is not enough
Banca Transilvania, the third largest bank on the Romanian market by assets, has managed to keep boosting its lending during the crisis years. In the past year the bank has boosted its volume of gross loans by almost RON1 billion.
It is impossible for this volume of new financing to compensate for the RON4 billion decline in loans granted by BCR and BRD.
BT is one of the few banks that prove that production of new loans helps keep under control the ratio of non-performing loans, BT can afford to talk about the future, announcing plans to boost lending and expand its business by entering the Italian market.
But this is by no means enough to generate a positive sentiment on the market, although two other top-ranking banks – Raiffeisen and UniCredit – are making efforts to support lending.
But through their sheer size, BCR and BRD end up having exposure to such varied clients and be involved in so many transactions that other banks are also involved in, that the risk policies of the two and their low appetite for business are disrupting the entire market.
With a non-performing loan ratio of almost 30% in BCR’s case and of 24.4% for BRD, the two banks’ willingness to discuss plans to save problem companies or simply to renew credit lines, is low.
BCR is too busy organizing a unit that will manage bad loans and plans to assign 500 people for this unit.
BRD is even more opaque in terms of measures that deal with non-performing loans, but it pursues a similar model, dedicating personnel and logistical resources to this.
Although the reorganization of BRD’s corporate division is not similar in size to the BCR one, BRD’s business has been marked by the consequences of the fraud scandal at the end of 2012, which brought out weaknesses in terms of procedures and of risk management systems.
So 2013 remains a sacrifice year for the business of the two largest banks in the system, which focus on restructuring and reorganization. This is meant to restore profitability.
The discussion as to when BCR and BRD will return to the market full speed ahead remains open.
(English version by Daniela Stoican)