BNR also requested the audit firms it granted licenses to review the results published by banks and check really thoroughly the first half financial reports and notify of any potential data falsification or inaccuracy in the balance sheets.
“I’ve sent auditors everywhere to check the June 30 figures, and my message to them is ‘make a mistake and you’re out – you lose your license’. I am interested in provisions and the collateral appraisal to avoid any source of suspicion,” says Nicolae Cinteza, head of the central bank’s supervision department. I know bankers hate it, they are complaining about additional expenses but it’s better we made sure everything is OK and no longer see land pledged as collateral valued at EUR18/square meter when it is actually worth EUR2/square meter. We are keeping an eye on the valuators and already have a ‘black box”; we’ve even built a case against one of them with the prosecutor’s office.”
The central bank licensed seven audit firms to check the financial reports of banks, among which the Big 4, PricewaterhouseCoopers, KPMG, Deloitte and Ernst&Young; BNR’s request for service generates additional revenue for them this year.
Collateral valuation may give bankers valuable space to maneuver when calibrating provisions to match non-performing loans and may tempt them to overvalue it to avoid recording too high losses.
The banking system posted a cumulated loss of 192 million lei (EUR43 million) in the first half, as things took a turn for the worse in the last two months of the second quarter, due to the provision spending, which exceeded RON26 billion at the end of June by international financial reporting standards.
Cinteza expects the system to end the year in the red.
“Non-performing loans will continue to increase and probably exceed 20%.”
By June 30, non-performing loans had gone up to 16.76%, almost 2.5% more than at the end of 2011.
“Asset quality continues to deteriorate, but as long as the shareholders deal with the problem by maintaining the minimum solvency we require and by provisions, it does not pose any danger to the system,” Cinteza said. (EUR1=RON4.494)
(English version by Loredana Fratila-Cristescu)