“The interests on the small and medium enterprise loans should be somewhere at less than 5%. (…) the Romanian entrepreneurs, the investors, those who want to move the economy, are now paying double as much as the other important countries in the European Union,” Dragoteanu said on ZF Live.
The leu-denominated working capital loans granted to small and medium-sized enterprises start from 10% interest per annum and are most often more expensive than a consumer loan. Investment loans come with slightly lower interests, which start from 7% to 8% a year, but much higher than the 2.5% to 3% companies on other European markets pay.
A recent survey of the European Commission cited by the Fiscal Council showed about one quarter of the small and medium-sized businesses in Romania believed high interests to be the main hindrance in securing funding. The average percentage of companies unhappy with the financing cost is 18% in the EU.
Romania’s central bank specialists, too, said in a survey last year that small companies avoid bank loans because of the too high costs. One quarter of those that participated in the survey said at the time that even a slight raise of the fees or interests might cause them trouble with repaying their loans.
Banks have repeatedly complained over the last few years that they cannot find enough customers to lend money to. The central bank survey clearly showed for the first time that the level of interests charged was a factor in the low demand for loans. Banks had constantly denied during the crisis that the too high loan interests were a deterrent for those seeking a loan but central bank governor Mugur Isarescu urged them on several occasions to cut interests or else they would have no customers to give loans to.
On the other hand, the SMEs were the source of the biggest non-performing loan problems after the onset of the crisis. NPL ratio on this segment had reached a peak of 30%, largely because of the huge wave of insolvencies.
Dragoteanu believes banks should grant loans based on business ideas, as well, without requiring all sorts of collateral, which small and medium-sized entrepreneurs do not have, especially real estate.
“It is very hard to pledge the only family home as collateral for a business.”
He also believes the central bank should encourage commercial banks to be more flexible with the entrepreneurs who have a good business idea.
“Loan officers have neither the knowledge nor the education to be able to correctly analyze a business. In Romania, they won’t even look at you unless you pledge a building as collateral.”
About 80% of the Romanian banking system is foreign-held and the funding from parent banks to subsidiaries has been dwindling. The lines of credit from abroad have shrunk by more than EUR10 billion since the start of the crisis in Romania, with banks becoming increasingly reliant on deposits from customers.
“There are hardly any feasible projects. What started in the past has been frozen in the last few years and the new entrepreneurs need success models and governmental support,” Dragoteanu added.
Another problem he sees is the NPL, with banks having recovered only very little given that the market value of the real estate assets dropped during the crisis.
“Banks need to do some house cleaning. They relied on companies that paid their instalments to cover their losses. They changed the collateral loans and upped the monthly variable interest on loans a little to cover the non-performing loans that had been granted by people who are still in the system.”
(English version by Loredana Fratila-Cristescu)