Foreign banks must be persuaded to maintain in 2004 the same financing lines they have been granting to the Romanian economy in the past years, even though the macroeconomic projections do not sound very encouraging. This was the main message conveyed to the bankers by the National Bank of Romanian Governor Mugur Isarescu yesterday, during one of the meetings they attend periodically.
“I have called you here to inform you directly on the problems we have tackled in the Board, about the macroeconomic situation we have on our hands. And this way you can stop complaining about having to learn about our discussions from the media,” the NBR Governor said yesterday.
Yesterday’s meeting between the Governor and the bankers had been announced several days before, but remained rather mysterious in the end. The meeting came at a time when the central bank’s concerns about the deteriorating economic parameters seem to be confirmed, both for 2003 and for next year.
“I am rather sceptic about the possibility to see the external deficit go down way below 6% of the Gross Domestic Product next year, so it is your task to persuade the parent banks that this deficit can be financed, that the current macroeconomic situation is actually a matter of conjecture and that the financing lines have to continue,” Mugur Isarescu told bankers, especially those running the Romanian-based branches of foreign banks.
In fact, Isarescu had hinted at the same issues during his press conference on Tuesday. “It is enough for the foreign banks to see several such figures (trade deficit, slower growth, lower-than-expected investments, surging inflation, declining reserves, i.e.) and, before they can fully grasp what is in fact happening with our economy, they are likely to cut any line of financing,” the National Bank Governor said on Tuesday.
The foreign banks’ Romanian exposure has visibly increased since 2001, when the macroeconomic situation was beginning to look promising, but also because the wide margins brought hefty gains, bigger than those obtained in any other neighbouring country.
Effects were quick to show. Foreign financing has fuelled the booming consumer lending, which the authorities are now trying hard to contain.
But where do these fears stem from? After the foreign banks reached their goals and made a lot of money without having to work too hard for it, now that the economy is shaking, margins and, implicitly profitability are shrinking, so that a smaller exposure of foreign banks may be only one step away.
Isarescu also said that the message NBR wanted to send by containing lending had been seriously misunderstood: “We did not necessarily say that the soaring consumer lending was shaking the trade balance. We are in fact concerned about the evolution of aggregate demand which will eventually result into inflation, if it is not controlled properly,” the Governor allegedly said.