According to data shown to Erste investors by Dominic Bruynseels, the CEO of BCR together with the head of BCR’s risk department Michael Beitz, non-performing loans worth over EUR1.3 billion were generated in the 2005-2007 period, with nearly EUR700 million being accounted for by loans granted in 2007.
This is the first time that BCR heads make this “revelation” public and blame the “legacy” left over from the old management of the bank for the current quality of the loan portfolio. Although they don’t say it directly, BCR officials in fact blame the “Danila inheritance” through the numbers presented.
Nicolae Danila is the former CEO of BCR, appointed by the state in 2000 and kept by the Austrian bank until December 1, 2007.
Erste won the auction for the privatization of BCR at the end of 2005, then the proceedings up to the actual payment of the EUR3.75 billion continued until the autumn of 2006.
Then followed a year of cohabitation between the Austrian bank and Nicolae Danila, currently a member of the central bank’s board.
He had been president of the bank since 2000, and only in October was persuaded to step down. As the group didn’t have another manager ready to take the job, Erste opted for an interim CEO at the BCR – Manfred Wimmer, who was at the time head of Erste’s strategy and in charge of the BCR project. He was CEO until July 1, 2008, when he handed over to the current chief executive, British-born Dominic Bruynseels.
In the autumn of 2009, Danila became a member of the Board of Governors of the BNR or National Bank of Romania. He is one of the largest individual shareholders of Erste and has retained a stake in BCR.
He was backed starting in 2004 by the EBRD and the IFC, which took over 25% in BCR and did not signal any risk management problems. In fact, nor did Erste or the banks that stepped inside the BCR’s data room, such as Deutsche Bank and BNP Paribas, notice problems that would prompt them to abandon the race.
The Austrian group now says that the blurry times of the privatization process and the transition period that followed are to blame for 55% of the non-performing loans that today weigh heavily in BCR’s balance sheet and on its financial results.
The head of risk of the BCR presented a diagram of the history of the deterioration of the bank assets quality correlated with the important moments that marked the bank’s activity- the conclusion of the deal with Erste, the change of the top management team, the emergence of the financial crisis and the separation in 2010 of risk responsibilities from financial ones.
It is then that separate positions were created – chief risk officer and chief financial officer. Between 2006 and 2007, BCR’s net loan portfolio rose at rates of over 50%, while in 2008 it slowed down to 21% and to 2.1% in 2010. On the other hand, the trend of non-performing loans was the opposite: from 2.2%-2.6% before the Austrian bank took over, in 2009 they jumped to 12.3% and then surged to over 20% in 2011.
The bank’s management says the 2005-2007 period generated around 42% of the bank’s current loan portfolio, with the peak years being 2007, with EUR2.25 billion in loans and 2008 with EUR2.34 billion. Almost 30% of BCR’s non-performing loans, i.e. EUR712 million, are identified as originating in 2008, with the year accounting for 21% of the loans.
The current management of the BCR basically only takes responsibility for the 2009-2011 period, which generated only 16% of the bank’s non-performing loans, i.e. EUR376 million, while the total volume of new loans was over EUR4 billion. Beitz says retail accounted for only 4 percent, while the rest was accounted for by the corporate division.
At present the BCR management says it now has credit risk under control after implementing a number of measures.
One measure is analyzing the industries for which loans are granted in terms of economic viability and not in terms of the collateral available.
As far as risk reduction is concerned, Beitz says BCR sold unsecured consumer loans worth EUR390 million between 2010 and 2011 and improved the software that monitors debt collection.
Also, the recovery strategy has been changed from “restructure and keep” to “restructure and sell.” So a new division has been set, which is set to fix and recover exposure to the corporate area. It currently monitors 1,370 clients who took out loans worth nearly EUR1.9 billion.
130 are companies with restructured loans and 46 are real estate developers who, in turn, have seen their loans restructured. Nearly 1,200 clients are targeted by a recovery process, but none have reached the foreclosure stage.
(English version by Daniela Stoican)