Van Groningen: Economic crisis will eat into banks' profits in 2009

The economic crisis will affect the banking system next year, generating profit declines, says Steven van Groningen, Raiffeisen Bank chairman. “The banks’ profits will fall, on the one hand, due to the high interest rates at which they attract resources, and on the other hand, due to the increase in credit risk provisions,” Steven van Groningen says. As early as the third quarter of the year, large and small banks alike have started to set up additional provisions, given that the successive credit interest rates increases and the depreciation of the RON have affected the clients’ repayment ability. The worsening of the overall economic situation in October and November has exacerbated the risk of corporate clients having difficulties in paying their instalments, amid a rise in interest rates. “There will definitely be corporate clients who will have a harder time repaying their credits, which will prompt us to increase provisions,” van Groningen says. Banks are basically trapped in a vicious circle now – they are raising credit interest rates to match the higher cost of resources and the higher risks, but, at the same time, they are deteriorating the clients’ repayment capacity and incur high-risk provision costs.