The Credit Cooperative – Romanian People Bank (BPR) founded in December 1996, is the most important people’s bank at this time, with major funds attracted from the populace.
The BPR president Emil Botea, has had a spectacular record in the financial-banking world, which illustrates possible connections between credit cooperatives and commercial banks. Emil Botea led the BPR, a credit cooperative that held the deposits of 400,000 people at the middle of last year, according to his own words. But he also chaired the Management Board at Banca Unirea, a bank that had made placements in various sectors of the economy. According to Botea, in Banca Unirea he held “a representation position, without the right of signature in relations with customers.” He did not have more than 5% in Unirea, therefore was not a significant shareholder and was not subject to NBR oversight.
The Unirea commercial bank was founded in 1996, with the participation of the Moldova Financial Investments Company (then FPP II Moldova), which held a 36% stake. The bank has sailed through some troubled waters, with no less than seven presidents in two years. In 1999, in a free fall because of “high operating costs,” the bank found a breather in the money which Liviu Tudor, an opinion leader within a group of influential shareholders in the General Shareholders Assembly, brought from the Romanian People Bank (Banca Populara Romana), which thus switched most of its placements from Banca Pater to Banca Unirea. In the summer of the same year, Liviu Tudor starts negotiations to sell a 13% stake in the bank, and turns it over to Emil Botea, president of the Romanian People Bank and owner of 90% of the BPR stock at the middle of last year.
Emil Botea admits that when he decided to join the ranks of Unirea shareholders, he did consider the effects the new legislation might have on the BPR, especially on its profitability. “I would be a hypocrite to deny that I thought about Banca Unirea as one of the solutions, given that the law regulating people’s banks would come out and prevent us from operating normally,” he says.
Businessman Cristian Burci, who owns a 6.6% stake in BPR, said: “There was a moment when Banca Unirea, which was in the red in the first quarter, needed the Romanian People Bank.” The BPR was handling almost 7 trillion lei, just the right amount to help “Unirea” survive, at a time when its biggest customer and shareholder, SIF Moldova (with 24% of the stock following the capital raise to 50 billion lei), was pressing to withdraw a large amount of money deposited with Unirea.
In case of a crisis, Botea said in December, the BPR could refund at least 50% of the deposit, plus the interest. One of his plans was to set up a fund to guarantee people’s deposits in the cooperative banks network. According to Botea, some 40% of the money BPR attracted from the populace was in government bonds, which offered greater security compared to other placements. Another share of the money was deposited with commercial banks, especially foreign ones.
Botea said the BPR was negotiating with British insurer Lloyd’s to sign insurance contracts for portions of the amounts and for the banking activity itself. The BPR was planning to collaborate with securities firms and brokerage companies to distribute the bank’s products through their networks.
Early this year, the National Bank allowed the BPR to participate as a significant shareholder in the Unirea commercial bank. Later, the NBR had to deny rumours that its approval was in fact a confirmation of BPR’s solidity and financial indicators. “The National Bank’s approval is not a certificate of solidity granted to a legal person,” the NBR said in a press release. According to the regulations in force, any natural or legal person that eyes more than a 5% stake in a commercial bank operating in Romania must apply for NBR approval. For this purpose, the prospective buyer must submit documents certifying that enough resources are available to make the acquisition. The buyer must also certify that the money is not acquired from a domestic loan. “This provision ensures that the National Bank is aware of the sources used to make the capital raise, but is under no circumstances an appraisal of the activity of the legal person in question,” the NBR press release continues.
In 1999, BPR posted a 3.8 billion lei pre-tax profit, up from 888 million lei in 1998. In the same period, BPR had own funds amounting to 90 billion lei and 35 trillion lei in current investments. Today, the BPR says it has 40 subsidiaries and provides banking services to 500,000 customers. Out of the total loans the bank extended last year, 0.43% were non-performing.
In 1998, own funds were 1.096 billion lei, and current investments, 2.895 trillion. In 1997, BPR had a pre-tax profit of 123 million lei. Its own funds that year were 190 million lei, and current investments were 637 billion lei.
BPR became involved in projects such as the “Roman” loan programme, where it allocated 1 trillion lei. The money was used by small and medium enterprises to buy the production of Roman Brasov.
BPR also took part in the recovery effort for Banca Albina, advising the deponents to convert deposits into one-year savings certificates and later into bank stock, but the deponents turned down the offer. BPR drew out of the operation in early may 1999, complaining that much more money was needed to put Albina back on track than the initial estimate of 100 billion lei, the amount BPR wanted to put into the capital raise.
BIR and FNI crisis dents BPR
On May 30, withdrawals among BPR deponents in Craiova grew alarmingly. The management blamed it on diversion telephone calls that urged the people to pull out their money or risk losing it.
On June 5, the BPR Management Board froze all payments for a period of up to six months, as the rate of withdrawals before maturity went up suddenly in several weeks. “In the last 15 months, the BPR paid to the populace more than 927 billion lei on maturity. Payments were stepped up after the crisis of the National Investments Fund, BIR and BCR; in the last 60 days, around 500 billion lei were withdrawn. In parallel, BPR extended more than 205 billion lei in loans and cashed in 213 billion lei in returned loans,” a BPR press release read.
On the other hand, in a press release to its customers, posted at BPR teller desks, the management said: “We guarantee that in 12 months maximum you will have all your money back, plus interest. Also, by that time, a new law regulating people’s banks will be promulgated, guaranteeing people’s deposits.”
In the address to its customers, BPR suggested the following variants for the matured amounts: repayment in 6 equal monthly instalments, starting December 15, of the deposit and interest, by transforming deposits and savings certificates into 12-month restructuring deposits, a 42% variable interest rate and repayable in 6 monthly instalments; sale of Unirea stock to make up for the payables to BPR, with a 15% discount on the 200,000 lei selling price, within the bank’s 100 billion lei share capital; priority purchase of BPR assets (computers, printers, cars); turning matured deposits into BPR stock.
“BPR has a network of 50 branches. Own funds are in excess of 150 billion lei. Credits amount to 500 billion, and payables are around 450 billion. Under these circumstances, there is no question of bankruptcy,” the press release said.
The following day, BPR president Emil Botea said interest on deposits would be paid to the populace starting June 11; starting early July, customers would also be able to withdraw the deposits. The BPR has halted all investments for the year 2000. “This year we had planned to open 200 branches and subsidiaries,” Botea added.
The BPR also commented: “1. The National Bank of Romania or the ‘UNIREA S.A.’ Commercial Bank have had no involvement in this situation; 2. This situation has emerged because of the massive wave of before-term withdrawals, spawned by the general crisis at the FNI and the diversions at the BCR; 3. The people’s funds are safe in credits and profitable financial placements, and payments will be made in full. 4. There was never the intention to repay the people’s money in products or stock. The amounts deposited by the populace and the interest will be repaid in cash.”