Banks applaud new rules, call for smaller minimum reserves

Newsroom 14/09/2007 | 16:29

Unless minimum reserve requirements are also lessened, the cost of credit will continue to remain disproportionately high in Romania compared to other European countries, said the head of the Romanian Banks' Association, Radu Ghetea.
The central bank must follow through and continue to reform its norms until banks no longer feel compelled to outsource loans to parent banks abroad due to the
high level of mandatory reserves, he said.
Related to the timing of the new BNR regulations, HVB-Tiriac Chairman Dan Pascariu said the development was bound to happen. The National Bank has to abide by regulations on the European market and allow for more leeway for commercial lenders.
“Multinational financial institutions have experience in assessing the maturity of the market and their own risk degree. Clients' risk profile is not necessarily determined by the central bank, but by commercial banks themselves,” said Pascariu.
Bogza said the changes have come just in time.
“Until now I do not know of any foreign banks granting retail loans in Romania in an attempt to profit from the tight regulations local lenders had to abide by. This is something that solely occurs with corporate loans. Foreign banks are not disadvantaged by the high costs caused by minimum required reserves, therefore they already grant corporate loans massively,” said Bogza.
The changes in central bank regulations are well-timed, he concluded. However, if minimum reserves are not removed, “sooner or later, what we see happening on the corporate side will also happen in the retail segment,” said Bogza.
Meanwhile, the volume and value of loans are expected to go up this year, although not necessarily as a consequence of looser BNR regulations, said the Bancpost chairman.
“The local banking sector still needs to catch up with other countries in the European Union, who are very far ahead. Consequently, a 30 to 40 percent increase in the total volume of loans granted by local banks does not appear to be an impossible mission,” said Bogza.
Pascariu expressed similar views.
“At the moment, most local banks are quite relaxed in the risk area and trying to increase their market shares, but I think this trend will lose momentum in time. I do not expect a significant increase in the volume and value of loans due to the relaxation of the NBR norms,” he said.
Nevertheless, there will be quite an important difference in the way financial institutions adapt to the changes in the period ahead, said the HVB-Tiriac head. “Non-banking financial institutions and financial institutions that do not have a strategic investor behind them might be the first to relax crediting conditions,” he added.
BNR's administration council has decided to make loan advance payments voluntary for individual clients in the future.
Deposits currently represent 25 percent of the sum for mortgages. Consumer credits also require an initial downpayment of at least 30 percent of the loan. The general debt limit for individuals' cumulated loans will also no longer be set at 40 percent.
BNR councilor Adrian Vasilescu said the new measure would transfer responsibility from the central bank to commercial lenders. The decision is rooted in Romania's accession in the European Union, he added.
In reaction to BNR's announcement, bankers predicted that advance payments will start varying according to the size of the loan and borrower's income. Either way, changes on the market will appear gradually, said CEC president Eugen Radulescu.
“The advance payment might go and the indebtedness might rise, but I do not predict abrupt movements on the market,” Radulescu said. “New regulations might lead to an increase in competition, but also to a rise in non-performing loans.”
Pascariu said the bank would not relax loan conditions right away, but rather carefully consider the credit risk.
“When we decide on the changes to be made, we will take into consideration both our risk policy and UniCredit Group's experience on emerging markets in the region. We will keep the balance between risk and sales objectives,” said Pascariu.
Bogza said Bancpost's reaction to the BNR's decision to loosen its grip on credit conditions depends on several factors.
“First of all, it depends on the final content of the BNR norm. We are still waiting to see it. Thus far, we only have a declaration of principles, not a final document,” he said.
Secondly, Bancpost's adjustment to regulation changes depends on the performance history of retail loans.
“Evidently, in the case of loans with a good repayment history, we will consider relaxing advance payments conditions and the debt/income ratio,” said Bogza.
Lastly, Bancpost will consider other bank reactions to changes in the norms.
“What is certain is that we will not abandon caution in our crediting activity overnight. We will only try to be more flexible and apply ourselves more to our clients' needs,” said Bogza.

Ana-Maria David

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