“These are loans, which banks recognized as losses, there is no hope for recovery thereof, so there is no point in keeping them in the balance sheets. I recommended that they remove them,” said Nicolae Cinteza, head of the central bank’s Supervisory Department.
This will be the first step of an action plan intended to help the banking system shake the negative perception its very high NPL ratio caused, seen without taking into account its 68% loan-loss coverage ratio under the IFRS.
“At a solvency ratio of 16.3% (as of March 2014), banks are in the position to admit their greed before the crisis and stop carrying this burden of NPLs. If we don’t begin now, we’ll be in trouble later and won’t be able to create the premises for a healthy growth,” Cinteza added.
Judging from banks’ reports about the portfolios, he expects the cleanup plan devised to consist of four big steps will lead to a decline of the bad debt rate from about 22.3% to 13.6% by the end of October.
Banks have until late July or, under exceptional circumstances, until mid August to remove the entire RON6 billion package, including retail loans, from their balance sheets, Cinteza said.
Whereas the removal of the RON6 billion worth of fully provisioned NPLs from balance sheets is an easy thing to do, the situation becomes more complicated when it comes to the second set of RON3.8 billion of loans, which are more than one year past due and banks have no reasonable hope of recovering them, but are reluctant to write them off as a loss.
The central banks recommends that banks set aside provisions for 100% of these loans under IFRS and says it will be watching carefully to see who does not admit the loss.
The banks that will not be playing fair in this will be punished with harsh capital requirements, Cinteza says.
(English version by Loredana Fratila-Cristescu)