Danila ran such a bank – BCR – when it was not yet privatized. He received the title of doctor honoris causa from the Ovidius University in Constanta last week.
Danila remains the sole representative of the financial system who has had this rhetoric since the beginning of the crisis, giving constant warning that Romania is more vulnerable than other countries in the region because the market is dominated by foreign banks, which can never put their local interests above the interests of the international groups they are part of. They would rather see their clients go bankrupt than take the more complicated path of providing assistance and coming up with a viable restructuring of loans.
But his signals have not been echoed at government level, so Romania has in no way improved its situation in this regard, rather it became even more vulnerable because of problems facing banks in the euro zone and amid pressure facing Austrian banks, such as the limiting of financing in the region.
Moreover, the government has not even managed to get the approval of the European Commission for a capital increase at CEC Bank, the main bank still in the hands of the Romanian state. The government even almost did not allow profits to be used for recapitalization – but the problem was eventually remedied in Parliament. The bank did not manage to increase its market share by boosting lending to compensate for the withdrawal of foreign banks. At the end of September 2011, CEC held 6.2% of the assets in the banking system, which compares with 6.4% a year before.
Danila shies away from speaking in his capacity as member of the BNR’s board of directors, but as university professor he does not hesitate to use the phrase “credit crisis”, which is not found in the rhetoric of central bank officials.
Ten months into the year, non-government lending saw an annual growth of just 3.2% in real terms, while the volume of leu-denominated loans – on which all lending hopes are pinned – recorded a non-significant rise of 0.6% in real terms.
For three years bankers have been complaining about the lack of loan demand, saying this is the reason why the market declined, not the costs and the lending terms. They say clients have already become very much indebted or no longer want to burden themselves with debts given the uncertainty of their income.
Danila, however, says the economy needs financing to return to sustainable growth and that a sovereign country needs not only a central bank, but also to build reserve capital for use when the banking system faces solvency problems and can resort to taxpayers’ money, or when the structural adjustment pushes the economy into recession, affecting the incomes of the same taxpayers.
He believes it is time for Romania to build a local bank of systemic and strategic importance, a so-called market maker – an institution that can drive the market in a certain direction and can intervene to balance the market in times of crisis. The former executive president of BCR between 2000 and 2007 was endorsed by PSD (Social Democratic Party) in the autumn of 2009 for the position of member of the board of governors of the BNR.
The opposite rhetoric comes from Sebastian Vladescu, former head of the privatization commission of the BCR, who signed the contract to sell the majority stake to Austria’s Erste. He says the BCR could not have done anything in crisis had it remained in the state’s hands because it would not have had access to financing, especially to external financing, citing the state’s inability to put CEC Bank to work.
“The problem is not with banks, it is with the businesses that are still oversized, with the entrepreneurs who still dream of the profit rise graphs of 2007-2008, have kept putting off restructuring their businesses and cannot be given financing based on unrealistic plans. Banks are even more trapped than clients because there’s nothing they can do with the land they get for the defaulting loans.
Vladescu says domestic saving is insufficient and that the dependence on external capital flows for development is undeniable.
After the bankruptcies of the ’90s, local capital has only been tentatively involved in the banking system. The latest banking project emerged during the crisis, in 2010, when businessman Valer Blidar set up Banca Feroviara bank, but it has been proven that it is hard to develop a sizeable business, as the Banca Carpatica project in turn has shown.
However, Nicolae Danila pleads for a strong bank, able to soften the credit crisis and a “prospective solvency crisis in the banking sector.”
BNR has repeatedly reassured lately that the banking sector is well capitalized enough and that there are no solvency-related risks, especially since several banks continued to make capital increases, including the BCR, which is EUR100 million stronger.
But what funds could be used to create such an institution, especially now that the state is making efforts to reduce the budget deficit as much as possible and that international funders IMF and the European Commission would not take kindly to such an initiative after they spent years pressuring Romania to sell its banks, rather than strengthen them as government-held companies.
The project imagined by Danila takes into consideration the involvement of private resources of Romanian companies and of individuals, which could be called on to participate alongside the Romanian state as investors.
He believes that one can cite the national interest of a sovereign economy for such a project, and use reserve funds and investment funds to set up the capital of the bank.
Danila believes that – as the experience of the last few years has shown – central banks are not able to solve financial and economic crises on their own, and that the instruments they have available often reached their efficiency limits, making it necessary to have a new structure, a mechanism such as an investment fund or a reserve fund that could be used to draw capital as the need arises.
He also says there are talks about such structures internationally, and that there is a need for a new instrument that can contribute to financial stability and play a role in the macroprudential policy.
The former commercial banker says Romania needs a mechanism – an institution that would reduce the risk of a spillover from external problems – such as the banking crisis in the euro zone – and would limit the costs of such a contagion.
The Romanian authorities are now in a position where they can only make statements directed at foreign banks, call them on the phone and send letters to parent banks of local subsidiaries to persuade them to provide the necessary capitalization and not withdraw their funding abruptly.
Under the current circumstances all they can do is hope that the local interests of banks with large exposure to Romania will be considered strong enough for the scenario of them abandoning the market to be scrapped.
Otherwise, giants such as Morgan Stanley can well imagine scenarios where European banks would resort to a massive withdrawal from Romania, in which case the entire precautionary agreement from the IMF, the EU and the World Bank, totaling EUR5.4 billion, would not be sufficient compensation.
(English version by Daniela Stoican)