EIU: delayed privatisation hinders BCR growth

Extending the privatisation of Banca Comerciala Romana (Romanian Commercial Bank – BCR) until 2006 will result in losing significant opportunities for the bank to develop, given the expanding Romanian banking market, as shown in a report by the Economist Intelligence Unit (EIU), a division of The Economist Group.
“BCR is a profitable bank and will get over this period well, but will surely be unable to make the most of the development opportunities a fast-growing market has to offer,” the report explains.
After two failed attempts to find a strategic buyer for the controlling interests in BCR held by the State, the Government agreed with the International Monetary Fund (IMF) to begin privatisation by selling 25% to the International Finance Corporation (IFC), the World Bank’s investment arm and the European Bank for Reconstruction and Development (EBRD).
The two international financial institutions will support the bank’s restructuring and their presence is meant to instil confidence in foreign partners in view of attracting a strategic investor in 2006. The parties involved are hoping to see the unfavourable conditions on the international market undergo a reversal in this period.
In case the Government does manage to find a strategic buyer, IFC and EBRD will have to sell their shares back to the Romanian State, so that the authorities in Bucharest could put together the controlling interests for the buyer.
The British analysts estimate this is the best solution that could have been found given the current circumstances, while the delay in privatisation will not make a negative impact on the public budget.
“Unlike other state-owned assets, BCR is not a millstone the Romanian taxpayer has to bear. The bank is financially stable and has made massive investments in information technology. BCR will keep posting profit and gain from the presence of EBRD and IFC,” the survey adds.
The real problem caused by postponing the sale is not the potential loss for the state budget, but the bank missing on the development chances.
“Although IFC and EBRD will begin restructuring BCR, the two do not have the expertise of the private banks in this field and they will have to reach compromises with the Government about the reform plans. IFC and EBRD will not be allowed to increase BCR’s capital as neither will they be able to provide the management expertise a large commercial bank could,” the authors of the study say.
These disadvantages will undermine BCR’s capacity to profit from the opportunities offered by the Romanian market at a critical moment for the Romanian economy.
On the other hand, personal incomes are going up in real terms, but few have bank accounts open, which makes the growth potential of the banks even higher. BCR will probably get a chunk of this uncharted territory, yet its capability will be diminished by the lack of a strategic investor.