The central bank also fears the move would encourage the non-payment of loan installments.
“I am familiar with bankers’ arguments, but I cannot help but look at prudential aspects. If you do a writeoff, IFRS accounting says you automatically give up any claim on the debtor. So you acknowledge the full loss,” says Nicolae Cinteza, manager of the Supervisory Department of BNR.
He says this is not cautious and that the right over the debtor should be kept.
“We have to see how we solve the problem of the contradiction between the prudential requirement and the accounting one,” says Nicolae Cinteza, director of BNR’s Supervisory Department.
He also brings up moral hazard, which would come into play if the market knew the banks had a faster alternative than through the complicated procedures of foreclosure sale.
“Any client would expect the bank to forego any right over them. In any case we will have to have a list of all debtors for which a writeoff was done at system level. We cannot let them appear to be completely clean only because the bank gives up any demand on them.”
So the head of Supervision would say yes to banks being able to resort faster to write-off prcedures, while not completely giving up the right to collect the debt, in line with the IFRS norms adopted by the system at the beginning of 2012.
On the other side, bankers argue in favor of easing the conditions under which a writeoff can be done, primarily citing the significant cost of the foreclosure sale process, which takes a long time.
Another argument is the continuous depreciation of guarantees, which can make the whole process more expensive than what is recouped in the end.
Cinteza also says the loans targeted by a writeoff are already fully provisioned for, in line with the rules set by the BNR, so the “hole” is already covered.
In each of its periodic assessments of the Romanian banking system, the IMF mentions banks’ difficulty to write off a loan and in general the slowness of cleaning up balance sheets. Without clean balance sheets it is difficult to expect a genuine rebound of the production of new loans.
According to the current rules, banks can write off non-performing loans only after running out of options to recoup the debts, which can even take years especially if the debtors take shelter under the umbrella of insolvency.
A black box of those who cheated banks
Cinteza brings up again the abusive practice of companies that declare insolvency in order to keep from paying their loans and he proposes to create a black list of those company shareholders who do this.
“We will contact the Authority on protection of personal data and see what we can do because a ‘black box’ would be good. When you make insolvent 4-5 companies in a row, all of which have loans, this is an abusive practice and it must be discouraged. Banks need to protect themselves against the client’s temptation to try to cheat a second time. One needs to be able to avoid a client who cheats the bank and then seeks to take out another loan.”
(English version by Daniela Stoican)