The event was organized by Ziarul Financiar in partnership with Alpha Bank, Citi Bank, Garanti Bank, NetTeam, Deloitte, Reff & Asociatii, Aegrm.ro, PwC, EximBank, KeysFin and casadetraduceri.
“Banks still have EUR5 billion to EUR6 billion worth of NPLs in their balance sheets, especially on the corporate segment,” said Speranta Munteanu, partner with audit and advisory firm KPMG.
“These NPLs will be up for sale in the next few years. There are non-performing loans in any economy and any banking system, the problem is how high the percentage is. A reasonable level for Romania is less than 10%.”
NPL ratio in the banking system currently stands at 13% to 14% after having peaked at 25% in 2014.
Bankers expect the ratio to drop below 10% next year, following sale of EUR2.5 billion worth of NPL this year.
“I think we’ll reach a normal NPL ratio on the market, less than 10%, banks are pretty much done with the cleanup. The cleanup on the retail segment is over,” said Victor Angelescu, country manager of debt collector APS Romania.
“About EUR2.5 billion worth will be put up for sale in 2017, as well, and in 2018 I expect about EUR1 billion to EUR1.5 billion.”
Czech-held debt collector APS is one of the largest in its industry and has about EUR4 billion worth of sour loans in its portfolio, EUR3 billion of which corporate loans.
A debt collector recoups about 30% to 40% of a retail loan and 20% to 25% of a corporate loan, Angelescu said.
Entrepreneurial businesses gave bankers the worst headache during the crisis, with NPL ratio among small and medium-sized enterprises reaching more than 50%. One of the reasons for this situation was that entrepreneurs and bankers took too long to decide on restructuring.
“It takes too long for the decision to take restructuring steps to be made, besides, the insolvency system in Romania is complicated. There are very few success stories, maybe 3% to 4% of all cases. Banks have to take their share of the blame, too, in this restructuring process, starting from collateral assessment, business valuation, and the restructuring thereof,” Speranta Munteanu said.
One of the mistakes banks made during the crisis was to rely a lot on assets and real estate collateral pledged by their clients, and less on companies’ capacity to generate cash flow.
“Banks fell in love with assets during the boom days, which is why they really appreciated clients’ collateral. What they forgot, however, was that repayment is made from the cash flow. Collateral is very hard to sell,” said Andrei Burz-Pinzaru, partner with Reff & Asociatii.
Banks say they have learnt their lessons and are now much more careful about the risks they take. Their cautiousness shows in the new loans, where the default rate is close to zero.
“Many businesses went under because entrepreneurs put their money into assets, they bought buildings, plots of land that do not generate income and were unable to keep their business going. Default rate is almost zero for new loans, banks are much more sensitive to risk at the moment,” said Codin Nastase, Bancpost risk management vice president.
Retail lending, that is lending to consumers and SMEs has the highest growth potential as far as banks are concerned, and is expected to beat corporate lending, where the market is much smaller. Retail lending is somewhat stagnating at the moment as the debt discharge law caused a steep decline in sales of mortgage loans.
Sales of standard mortgage loans plummeted after lenders rose the down payment from 10% to 15% to 30% to 35%, following the enactment of the debt discharge law. Some lenders are now thinking of lowering the required down payment.
(English version by Loredana Fratila-Cristescu)