Insolvencies hinder lending

The wave of insolvencies, some of which voluntary, is generating such high costs for banks that it hinders the National Bank’s effort to encourage the resumption of lending, says Sergiu Oprescu, executive president of Alpha Bank, one of the large banks on the Romanian market.

“Interest rates are on a downward trend, which should lead to a rise in lending, but on the other hand there is a rise in the number of voluntary insolvencies, which shakes the banks’ confidence to grant loans,” says Oprescu.

He notes that currently the banks’ ability to react to signals of the NBR (National Bank of Romania) and even to anticipate them has risen significantly. Several banks, among which Alpha Bank, adjusted interest rates on loans in RON last week, in parallel with the NBR’s decision to cut another half a percentage point off its monetary policy rate, to 7% a year.

Bankers complained as early as last year that filing for insolvency had become a “national pastime” and asked repeatedly for a national debate on this subject. According to Oprescu, the legislative changes made lately generate additional problems to banks. Last year, regulations were modified, preventing banks and leasing companies from executing guarantees of bad payers based alone on the credit contract. They now also need a judge’s approval.

“The system was not ready for this; these changes were made at a time when executions peaked. A gap was created between the system’s capacity, and market needs. (…)” Previously, the execution of a guarantee would take around a year, but now it can take up to two years, which entails higher costs for banks.

Under the circumstances, bankers feel that, due to clients refusing to repay loans or hiding from creditors behind insolvency, the other clients stand to suffer because the bank needs to recoup its costs, so new loans cannot become significantly cheaper.

Non-governmental loans could rise by around 10% this year, but more important than the rise in the volume of funding is the fact that it is investment-oriented.

“We are at the level of the Gross Domestic Product of 2007. At the time the economy was financed via a 35 billion-euro non-governmental loan. If the exposure can be preserved, but the structure improved by moving financing from consumption towards investments, it would be very beneficial for the economy,” says Oprescu.