“The central bank has recently adopted a norm allowing lenders to clean their balance sheets by removing fully provisioned non-performing loans,” Radu Gratian Ghetea said at the ZF Bankers Summit’14.
Ghetea who also serves as the chief executive of CEC Bank, said the central bank issued two recommendations for local lenders, namely that they should provision loans that are overdue by more than 360 days but are not yet placed under foreclosure and that they also should provision 90% of the loans extended for customers who went insolvent.
Also, the central bank has issued two recommendations: to provision loans overdue by more than 360 days which are not yet placed under foreclosure and to provision 90% of the loans extended for customers who went insolvent, Ghetea said.
The new provisions lead to higher expenditure for bankers and subsequently to lower profits. Some of the local banks could even incur losses if they follow the central bank’s recommendations, he added.
“We must look to the future. While not pleasant, cleaning up the balance sheets is necessary.”
Ghetea said CEC Bank has fully provisioned NPLs worth some 80 million lei (EUR18.2 million). For the whole banking system, the provisioning level reaches RON6 billion (EUR1.3 billion).
Romanian lenders must mobilize another RON3.8 billion by the end of July to provision loans overdue by more than 360 days, while the provisioning of the loans extended to now-insolvent companies has to be completed by the end of September.
Ghetea said lenders should sell their non-performing loans to collection firms and focus on new loans.
“The loan portfolio will be diminished and banks will have to restock. Once the balance sheets are clean, lenders will have new reasons to extend loans and consumer appetite will also increase,” CEC Bank’s chief said.
He said CEC Bank plans to sell around RON4 billion in new loans this year, up from RON3.6 billion in 2013.
“Household loans rose threefold on the year in the first four months from the year-ago period, while corporate lending increased 18%,” Ghetea said.