Erste Group prepares EUR 230 mln provision following court decision that hit its Romanian savings and mortgages bank

Paul Barbu 25/06/2019 | 15:20

Austrian banking group Erste announced that it will provision up to EUR 230 million as a result of the decision of the Supreme Court in Romania that severely affects the business of BCR Banca pentru Locuinte, its local savings and mortgages bank.

”Despite this unique negative effect, Erste Group maintains its estimate for the financial year 2019 – achieving a return on equity of over 11 percent,” the Austrian bank said in a statement.

BCR Banca pentru Locuințe (BpL) received an unfavorable decision at the High Court of Justice in the dispute with the Romanian Court of Accounts on the savings and mortgages system, a local form of the German “bauspar” system.

According to the bank, BCR BpL complied with the legal provisions both before and after the revision of the law governing savings and lending, a law based on best practices in the European Union, and will continue to represent the rights of the clients as well as their own rights after the publication of the motivation the decision of the High Court.

The legal options considered by the bank are both legal actions in Romania and in the international courts.

Romania’s bauspar system

In 2004, Romania introduced the “bauspar” savings and mortgage loans system, a local version of the German system.

In this system, those willing to save for at least 5 years with a housing bank, which could offer them loans for purchasing or refurbishing a home at lower costs, would also receive a premium of up to 25 percent of the amount deposited over one year, but no more than EUR 250 per person.

The maximum gain, of 25 percent, is obtained by depositing EUR 1,000 each year, and for larger sums other family members can open accounts so that each can receive the maximum EUR 250 from the state on their savings at housing banks.

The Court excluded children and the elderly from the beneficiaries and asked housing banks to return the state premiums paid until that date.

In the meantime, the Senate and the Chamber of Deputies adopted a legislative project that clarifies the issue and introduce differential premiums – the annual state premium remained limited to 25 percent of the amount deposited, but no more than EUR 250, only for clients who also take out a mortgage for housing or an anticipated or intermediary loan.

Clients who only choose to save money in this system, taking out their money after the minimum mandatory period of 5 years, could obtain a reduced premium of only 20 percent of the yearly savings, and no more than EUR 200.

The current form of the law says that there will be no differential premiums for those who withdraw their money earlier than after 5 years. The early state premium will only be allocated to clients who intend to take out a housing loan with anticipated or intermediary financing before the 5 years of savings is reached.

Another change is that all deposits made by the clients (except costs related to opening, managing and closing the contract) are taken into account.

In order to resolve the issue raised by the Court of Accounts, the Deputies have established that, in order to receive the state premium, after the 5-year term expires, clients need to present to the banks documents proving the use of an amount at least equivalent to the total state premium and related interest rates for housing purposes in a maximum of six months from withdrawing their savings from the bank.

The updated project also introduces new obligations for housing banks, who will have to check their clients’ eligibility and the documents they provide to prove the state premium and related interest rate is used for housing purposes. Banks will also have to provide a yearly report for the previous year, as well as a prognosis for the current and following three years regarding the state premium system.

Romania currently has two housing banks – BCR Banca pentru Locuinte and Raiffeisen Banca pentru Locuinte – with assets of around EUR 800 million and close to 500,000 clients a couple of years ago.

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