Romanian banks have managed to redress their crediting system over the last eighteen months by eliminating Bancorex, Bankcoop, Albina and Banca Internationala a Religiilor (International Bank of Religions), but exposure in real economy dropped, so that of 100 lei that are attracted, only 39 lei are lent to companies, reveals an NBR report recently presented at the budget-finances Commission within the Chamber of Deputies.
The health of crediting is underlined by the weight held by due and doubtful receivables in the total of borrowed sources, which fell from 16 percent at the end of 1998, to 3 percent in June 30, 2000. At the end of the year 1998, due and doubtful receivables were 2.5 times higher than own capitals, but on December 31, 1999, they accounted for only 31 percent before going down to 21 percent on June 30,2000.
However, this evolution does not reflect better management of the crediting risk, but merely a clean-up of banking balances as due credits were taken over by public debt.
AVAB (the Banking Assets Resolution Agency) last year took over 15,000 billion lei-worth non-performing credits from the portfolio of Bancorex and Banca Agricola (the Agricultural Bank). Moreover, credits and interest rates afferent to credit contracts invested with an executory formula, have been eliminated from the balance.
The methodology for credit classifications and provisions was changed in April this year, by tightening requirements for banking provisions and including under higher risk categories all credits which were not paid back within 90 days after falling due. Therefore, the crediting risk rate dropped from 58% at the end of 1998 to 35% on December 30, 1999.
“This weight reflects the economic situation, where interests are high and banks’ willingness for granting credits, especially long-term ones, is rather low,” says Doru Lionachescu, director of the Local Companies Department within Citibank Romania SA.
“The dynamics of due and doubtful receivables shows that, at the end of 1998, the banking system was a completely ailing environment. The lower weight of these credits shows that the banking system’s cleaning process is unfolding, which is also reflected in the dynamics of the sector’s profitability,” Lionachescu maintains.
Thus, while at the end of 1999 the banking system was losing money, profitability rates, such as efficiency in using ROA assets on the first half of year 2000, though low, are now looking up, Lionachescu adds.
However, firms have felt neither the banks’ positive evolution concerning due receivables, nor a higher willingness to grant credits.
“Crediting possibilities are great, but utterly inexistent,” says Gabriel Ionescu, chairman of Romanian Employers’ Association of Doctors, Pharmacists and Dentists.” “There are few banks willing to accept to finance this sector. For instance, financing for the acquisition of an electrical cardiograph cannot be guaranteed with the device in itself,” Ionescu explains.
Total credits granted by banks rose during the first six months of this year from about 102,000 billion lei to only 107,000 billion lei, therefore by less than 5 percent, against an inflation rate of about 20 percent, registered during the same period. Of granted credits, about 40 percent are represented by government bonds, which are banking investments characterised by the lowest risk, but which paradoxically hold the highest yield on the Romanian market: constantly 10-15 percent above the interest rates of banks.
“Beside credits granted to clients, banks place their money on the inter-banking market, in government bonds, in contributions in syndication, such as the credit the National Bank was granted last year by a group of banks, or in other bills,” Lionachescu explains the way banks are trying to diversify their risk profile.