BNR governor: The legislative uncertainty is limiting the lending capacity

Aurel Dragan 05/07/2018 | 14:31

The main factor limiting lending in Romania is legislative uncertainty, and fiscal stimuli can’t continue to infinity, as the correlation between how much you earn and how much you spend sooner or later hit fire, said Mugur Isarescu, the governor of the National Bank of Romania (BNR).

“There are factors limiting the materialization of the lending potential. The first is the legislative uncertainty created by unfortunate legislative initiatives that have affected and still affect the risk profile not only of the future loans but also of the existing stock. After the disturbances arising from the application of the Payment Law, the reimbursement of Swiss franc loans at the historical exchange rate, at present there are at different stages of the legislative procedure other normative acts that either hinder the recovery of debts or set up a regime of limiting annual interest rates on consumer credit in a more or less arbitrary manner, indifferent to product categories,” said Isarescu.

According to the BNR Governor, fiscal stimuli can’t continue forever, because “sooner or later” the correlations between salaries and productivity, between how much you earn and how much you spend will hit in great force.

“The question is: when these stimuli exhaust their power of action, what do we put in place? Romania will grow inertially as a potential, but it is usually wise to think what will be the next engine for growth. Because this engine can boosts our credit to 40 percent of GDP and can be a tremendous drive for the economy in a balanced, sustainable and healthy way. I would like to recall a second indicator of structural vulnerabilities that limits the access of companies to bank financing. In 2016, the last year for which centralized balance sheet information is available one third of Romanian firms reported losses. Half of these for the third consecutive year, so it’s not a matter of chance and it’s not about the crisis. In addition, 44 percent of companies had a capitalization below the statutory one. On average, loss-making firms accounted for 40 to 50 percent of the number of active companies. The credit granted by domestic financial institutions is just a small source of financing for local companies, with a rate below 9 percent of the aggregate balance sheet, far away from commercial credit with rate of 19%. And part of the commercial credit is almost wild, that is, you do not pay the suppliers and get an unhealthy credit,” said Isarescu.

The BNR official also said that, in terms of economic growth, we will see a deceleration to 4% this year, which will lead, among other things, to a reversal of financial intermediation.

“Economic growth decelerates to 4% and we will probably have a reversal of financial intermediation, making 2018 a turning point. Returning to the prospects of lending, the first point to be made is the existence of resources and I believe that there are resources to increase the banks’ exposure to the economy. The Romanian banking system has a significant degree of capital adequacy,” said the governor of the National Bank.

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