Economic restructuring has bankers concerned over loan repayment rate

What is the connection between the restructuring of state-owned enterprises and a potential extra worry for the bank managers? The link is very simple to trace: the beginning of state-owned companies’ restructuring, which generally triggers layoffs, has certainly got the central bank officials thinking, as they expect a surge in loan non-payment by those who will lose their jobs.

“The soaring consumer lending is being watched by the central bank, but not necessarily because of its growth pace (consumer lending went up more than 150% in real terms in the first eight months, i.e.), but rather as a consequence of the accelerated economic restructuring. Many of them (consumer credits, i.e.) are granted to employees of state-owned companies,” Adrian Cosmescu, deputy general manager of the National Bank of Romania’s banking supervision division said yesterday.

The big wages paid by the state-owned enterprises (above the average) and the fact that incomes were fully mentioned in the their work contracts enabled employees in the public sector to get easier access to lending.

Moreover, state-owned enterprises (mainly because they had large numbers of employees) were among the first companies targeted by banks when they issued debit cards. In time, to boost their trading volumes, banks became more lenient when it came to granting loans and, gradually, a debit card turned into an overdraft facility (loans matching the wages) and even a credit card.

Now, the beginning of the restructuring process at big, state-owned companies such as Petrom, Termoelectrica, Distrigaz Sud, Distrigaz Nord, CFR Marfa, the Romanian Commercial Bank (BCR), the Savings Bank (CEC) and RomTelecom may result into thousands of layoffs and, implicitly, a soaring loan non-payment rate.

Demand for consumer lending surged in the first eight months of the year, fuelled by rate cuts and the banks’ marketing strategies (aiming at bigger market shares), but also by the big retailers that have relentlessly tempted consumers with their offers. In eight months only, the growth pace of consumer lending amounted to 152% in real terms.

“The layoffs generated by economic restructuring may be a problem, but rather of a social nature. However, I believe there will be a rather small impact upon the loan payment rate, as many of those laid off will most likely find jobs in other sectors, so they will have other sources of income,” said Radu Gratian Ghetea, president of the Romanian Banks Association (ARB) and prime vice-president at Alpha Bank. oana.nuta@zf.ro