BRD bet: 55% economy stabilisation, 45% deterioration

Were I to make a bet, I’d say there are 55% chances we see the economy stabilise at the current level and 45% for the situation to further deteriorate, states Patrick Gelin, chairman of BRD-SocGen, the second-biggest bank on the market.

“I cannot foresee what will happen, but it’s clear the best we can expect is stabilisation, the more so as the agricultural year could prove good enough. We cannot expect anything more from the part of the government until elections, it is also too late for decisions that could save anything more this year and at any rate no executive would undertake dramatic actions in an electoral period, and from this point of view the crisis has been ill-timed for Romania”.

As regards moves that should aid the economy leave the crisis behind, the BRD official says that, beside the IMF agreement, there’s an “important piece” missing, namely major investment projects that are used across Europe to buoy economic activity. “The role of banks is not to help finance the budgetary gap, but support the economy, infrastructure investments; however, major projects are still missing”.

BRD has recently participated as a co-arranger with BCR in the club loan through which the Finance Ministry borrowed 1.2bn euros, with BRD’s participation standing at 250m euros.

BRD has enough room for manoeuvre to handle the doubling of bad loans in the first half, which was already anticipated in this year’s budget, with possible problems likely to emerge in the case of a tripling or a higher increase, says Gelin.

He says no surprise is expected in terms of the bank’s six-month income and reiterates BRD will not need a share capital increase this year despite rising provisions, keeping its solvency rate above the minimum 10% threshold required by the central bank of Romania.

The head of BRD believes that the evolution of credit risk provisions set up by banks in July-August-September will be vital in terms of assessing the stage the crisis is in.

As regards corporate clients, Gelin says SMEs have been primarily hit so far, especially small ones.

In the current economic environment, not even interest rate cuts for loans can push demand up any longer, as there is simply no more appetite for loans. As for RON deposit interests, Patrick Gelin estimates there will be further declines.