Romanian Banks' External Debt Stood At EUR23B In 2011

Short-term external debt was EUR7.4 billion at the end of December, EUR362 million higher than at the end of 2010, and by a mere EUR78 million lower than in the third quarter. On the other hand, long-term external debt decreased by EUR314 million from 2010, to EUR15.3 billion, according to central bank data.

This trend may be explained by the approaching maturity of certain lines of financing, which are passed from long-term to short-term debt, or by the conversion of long-term loans to short-term loans because of a worsening risk outlook.

“Although the structure of bank debt by maturity was better at the end of 2010, when long-term debt made up a slightly larger part, I think the most interesting aspect is that total external bank debt has remained relatively unchanged since the end of that year. This suggests that the banks’ confidence in Romania’s economy has not been damaged substantially last year,” said Vlad Muscalu, ING Bank economist.

Still, their confidence might suffer a marginal decline, considering that their external debt has not followed the economy’s advance, dropping to a projected 17% of the GDP from around 18.5% of the GDP in 2010,” Muscalu added.

Analyst Dragos Cabat believes external debt might stagnate or even drop this year compared with 2011, for both banks and companies.

Short-term external debt, the main vulnerability that sent Romania packing at the end of 2008, revolved around EUR22-23 billion at the end of last year, close to the maximum of 2008. In December 2011, short-term debt increased to EUR22.9 billion, after dropping by EUR1.1 billion in October and November. Compared with the end of 2010, short-term debt climbed by EUR3.4 billion, reaching a share of 23.3%, below the record-level of 28.4% in 2008.

While in 2008, short-term external debt was on the rise mainly because of financing lines attracted by the banking sector, since 2009 foreign indebtedness has moved from the private sector the government. The rise of public debt, internal and external, remains a major threat.

Company long-term debts dropped by EUR1.4 billion from December 2010, while short-term debts increase by almost EUR2 billion. Overall, company external debt increased by ERU422 million last year, to EUR24.7 billion.

“Statistics show that the private sector’s external debt was almost unchanged at the end of 2011 compared with 2010. This evolution confirms our scenario whereby private capital flows will remain relatively constant in 2012 and Romania should focus on attracting European structural funds,” said Eugen Sinca, BCR analyst.

The European funds’ capacity to support economic growth is superior to that of other types of capital, by stimulating the total productivity of export-focused sectors or by supporting investments in road infrastructure, Sinca added.

As regards government debt, long-term loans increased EUR3.2 billion in 2011, to EUR20.3 billion, while short-term external loans were up only EUR441 million. Total public debt was EUR22.2 billion at the end of last year, EUR3.7 billion higher than at the end of December 2010. Government debt was lower than EUR11 billion at the end of 2008, making up less than 15% of total debt.

“An increase in government long-term external debt can be a good thing due to more diverse resources and more distant maturities to finance the budget deficit and refinance public debt through bond issues on foreign markets. One can also observe improved interest from non-residents in lei bills,” Sinca said.

Romania’s total foreign debt climbed last year to EUR98.6 billion, 6.6% higher than in 2010 and 21% higher than in 2009. Since the start of the crisis, Romania’s foreign debt has risen by over EUR26 billion. More than half of last year’s increase was made up by short-term debt.

(English version by Radu Bostan)