Solvency requirements may hinder CEC''s lending

CEC needs recapitalisation to be able to continue its lending business in the medium run, without having the solvency index drop below the 20% average of the market, CEC”s chairman Eugen Radulescu says.

“Our solvency has dropped from 47% to 21-22% over the last few months, given that credits reached 2.2 billion euros, accounting for some 40% of the balance sheet. We”re seeing an increase in the balance sheet without an increase in equity capitals and when the lending reaches 60% we will no longer be able to grant loans,” Radulescu says.

At the moment, CEC cannot use the profit made in 2005, given that it has not been legally settled yet if the money should be used to cover the 9 million RON in severance pay to the 1,300 people laid off or if these expenses will be assimilated to current costs. In case of the latter option, CEC would have a 4.4 million RON (1.2 million euro) net profit for 2005. At present, the number of bank employees is down to less than 7,300, due in part to the outsourcing of security services.

Once the implementation of the IT system is completed over the next few weeks, Eugen Radulescu expects crediting to continue to increase, with the bank currently lending 10-15 million RON a day.

Meanwhile, CEC”s main “business partner” is still the NBR, where the bank has an estimated 2.2 billion RON (611 million euros) deposited, almost equalling the value of its loans.

“We are a big player on the market. We attract cash at lower costs and place it with the NBR. Some banks prefer to make overnight deposits to us instead of the NBR, even at lower interests,” Radulescu says. The bank has therefore benefited from the increase of NBR”s interest to 7.5% and then again to 8.5% over the last few months, after having slipped into the red in the first half of 2005 due to the abrupt interest rate decline.

Eugen Radulescu does not think NBR will increase the rate any further.