Isarescu advises banks to quell savings trend

The governor of the National Bank, Mugur Isarescu, has called for banks to stop raising interest rates on savings in order to increase their liquidity.

At present, interest rates on savings range from 6 to 8 percent, although the central bank slashed the key interest rate three times to 5.5 percent in early February. The inflation rate stood within the 3 percent target pursued by the central bank. In comments made while presenting the quaterly inflation report, Isarescu said, “It is fine for people to save money, but they then consume less. The prospect of consumption acting as a growth engine depends on the attitude of Romanians and banks who are competing to gain customers, which can be a double edge sword.”

There are eight subsidiaries of foreign banks in Romania, which have been backed by capital flows from mother banks, but the sovereign debt crisis in the EU and fears that the Euro zone may slowly fall back into recession have made the Romanian subsidiaries increase capital from domestic sources.

“The governor was taking a Keynesian approach because if people are saving too much now the economy will not work, but Romania structurally needs more savings,” said economist and former finance minister Daniel Daianu. “The thesis that only foreign capital can ensure growth has been proven flawed, and Romania will need to develop a growth engine that focuses more on domestic savings, and less on the markets,” adds Daianu. Setting up a new bank or recapitalizing state-owned CEC Bank could help the domestic business environment, suggested by Daianu.

Isarescu advises banks to reduce their retail networks, as Romanians are somewhat indebted, and switch to financing infrastructure projects. The governor said that lending to the private sector has steadily grown since 2010, but retail lending is still negative. At the same time, mortgage lending has fallen.  

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The loan-to-deposit ratio in the Romanian banking system was 116 percent at end-December 2011, while the non-performing loan ratio was 14 percent, according to the central bank. Retail and corporate deposits totaled RON 187
bilion.

Ovidiu Posirca