“You cannot build walls at the borders so that money doesn’t flow out of the country, but you can make the market more attractive than others to keep your money.” Negritoiu believes the Romanian banking system is not faring very well, with a ratio of non-performing loans of over 22%, one of the highest in the region.
The banker says risk-weighted assets are an essential parameter especially in the current context, helping banks assess whether it is worth it to retain a certain exposure or not.
“The question is whether an asset of EUR1 is actually worth EUR1 or only EUR0.5 or EUR0.2, and when the local market has such a high default ratio, it is more difficult to plead in favor of retaining exposure when parent banks face an increase in capital requirements.”
He says outflows of funds have been recorded – though in limited amounts – in the months after the Vienna agreement expired in March. In fact, the IMF notes in its latest report on Romania that in July the overall exposure of the nine foreign banks that had signed the Vienna agreement in March 2009 had fallen from 98% to 95% of the reference level.
Certain banks are also seeking to attract deposits from the local market in order to repay credit lines from parent-banks, which are pressured to adjust their exposure.
ING was not part of the Vienna agreement.
Now ING is the only foreign bank that owns a top-ten local subsidiary and does not need additional capital to meet the requirements of the new capital ratio Core Tier 1 of 9% required by the European Banking Authority for the summer of next year.
Negritoiu says the new capital requirements in the euro zone are obviously very difficult to satisfy in the private sector and the reduction of credit exposure becomes an option in order to get a better capital indicator, all the more so since there are reservations to accessing state aid.
However, he believes it is out of the question for local banks to end up taking tough exposure reduction measures such as requiring early repayments of loans or starting insolvency proceedings against certain clients.
“Such an approach solves nothing. Exposure can be reduced more efficiently through dialogue with clients.”
The more often used approaches in the last two years have been not extending certain lines of credit for corporate clients or extending them with lower amounts. In addition, it is enough for a bank to apply stricter eligibility criteria to stop it granting new loans.
Aside from lending to the private sector, a major risk is the possibility of certain banks reducing their exposure to government bonds issued by the Finance Ministry. Many banks have steadily increased this category of exposure in the last three years, including as part of the Vienna agreement, and in the last few months, there have been tensions over the willingness of banks to buy government bonds.
Officials of Erste Group, the main shareholder of BCR, have recently said that there was “neither the need nor the wish for a continuation of the Vienna Initiative” in order to retain foreign banks’ exposure to the Romanian market.
On the other hand, representatives of the National Bank of Romania and the Finance Ministry have said that the Vienna agreement should be revived in order to counter the risk of capital repatriation.
In 2009, the agreement was signed by Erste Bank, Raiffeisen International, Eurobank EFG, National Bank of Greece, Societe Generale, Alpha Bank, Volksbank, Piraeus Bank and UniCredit, which control 70% of the local market.
Now the Greek sector needs EUR30 billion in additional capital, so the nationalization of several banks is emerging as a possibility.
Erste needs around EUR750 million, SocGen EUR3.3 billion, RZB EUR1.9 billion, Volksbank nearly EUR1 billion, and UniCredit needs to get no less than EUR7.4 billion. In addition, subsidiaries such as BCR and Volksbank need additional capital at local level.
(English version by Daniela Stoican)