The banks operating in the Romanian system will be disbursing increasingly lower dividends to their shareholders in the future, as most of the net income will be used to consolidate their equity, Radu Gratian Ghetea, president of the Romanian Banking Association (ARB) told Ziarul Financiar when commenting on the modifications of the Banking Law.
He elaborates, saying the new changes and additions to the Banking Law 58/1998 will lead to reducing the legal reserves the banks can set up, an indicator that used to account for a significant share of the banks’ equity and implicitly had a major contribution to the capitalisation of the banks.
“The banking law as it is now, following modifications, is indeed compliant with every criterion required by the accession to the European Union. The banking community has largely received these changes well. There are, however, modifications we failed to postpone even though we tried to. Largely, one of the issues raised by bankers was precisely the manner of making legal reserves and reserves for banking risks, stressing on the effects the decrease of these indicators will have on the activity of the banks,” Ghetea says.
Whereas the overall lending risk reserve has previously amounted to 2% of the total credits granted, it will now be of no more than 1% of the total risk-bearing assets (an indicator that includes risk-bearing exposures other than credits, as well). The legal reserve used to account for 20% of the gross profit, while the new regulations have it down to 5% of the gross profit and to no more than 20% of any bank’s equity capital.
Besides the fact that the larger reserves helped certain indicators reflecting the soundness of a bank to look better, the other reason why bankers are lobbying for as high reserves as possible is their fiscal deductibility.
“They are trying to get as much money for the budget as they can, yet overlook the weakness they’ll induce in banks. Let’s not forget our banks are still weak in terms of capital. In the course of time and through nobody’s fault the banks’ capital has been constantly eroding, partly fuelled by the depreciation of the ROL,” the ARB official says.
Although aware that the new modifications of the banking law are made precisely in view of improving resemblance with the sector legislation in the EU, the bankers have requested the authorities to postpone certain provisions, particularly those on the manner of establishing reserves, for a time that is closer to Romania’s accession to the EU. Their request was denied and, after several months of talks and negotiations, the Parliament of Romania has recently endorsed the new banking law. oana.nuta@zf.ro