CHALLENGES AT THE LEVEL OF THE ROMANIAN BANKING SYSTEM
DURING THE PERIOD 2013-2014
NĂFTĂNĂILĂ CRISTINA ALINA
LECTURER PHD, SPIRU HARET UNIVERSITY, FACULTY OF ACCOUNTING AND FINANCE
CÂMPULUNG,
e-mail:
naftanailacristina@yahoo.com
BRAGĂ VIORICA
ASSOCIATE PROFESSOR PHD, SPIRU HARET UNIVERSITY, FACULTY OF ACCOUNTING
AND FINANCE CÂMPULUNG,
e-mail: viobraga@yahoo.com
AVRAM LAURENŢIA GEORGETA
LECTURER PHD, SPIRU HARET UNIVERSITY, FACULTY OF ACCOUNTING AND FINANCE
CÂMPULUNG
,
e-mail:laura.avram@yahoo.com
ZĂRNESCU ODI MIHAELA
ASSOCIATE PROFESSOR PHD, SPIRU HARET UNIVERSITY, FACULTY OF ACCOUNTING
AND FINANCE CÂMPULUNG
,
e-mail:odimihaela@yahoo.com
Abstract
Through this article we intend to present the evolution of the Romanian banking sector in th e last two years and to discuss about the challenges to which it is subject. In the second part of the article we performed an analysis of lending to non-financial companies during 2013-2014, based on statistical data sets published by the National Bank of Romania.
It continues to carefully monitor the international and local developments and to work towards proper management of liquidity in the Romanian banking sector.
The importance of this issue lies in maintaining of some adequate levels of the liquidit y, provisioning and solvency of the banking sector, which constitutes an important prerequisite to cope adequately of some possible adverse developments, including those outside the country.
Keywords: Romanian banking sector, lending the financial compani es, the structure of loans to the non-bank
customers, non-government, the structure of the deposits in lei and foreign currency.
Clasificare JEL : E50, E51
1.
Introduction:
Lending, a defining component of the financial intermediation, is the main strea m of the economy financing. The forms and instruments of lending are diversifying and adapting to the customer requirements, changes of the technology transfer and competition in an environment characterized by uncertainty and risk.
In the scientific approach we have based on the analysis of the documents and statistics on the financial and
banking field as those published by the National Bank of Romania (“Financial behaviour of the population and business in the territorial profile in February 2014”, “Survey on lending to non-financial companies and the population
in February 2014”, “Financial Stability Report 2013”), study of the specialized literature: Caesar Bazno, Dardac Nicolae Constantin Floricel (1999), Căpraru Bogdan (2010), articles and regulations of the NBR.
effect on the banking system. Thus, the deterioration of the asset quality in the banks' portfolios results in a reduction of the credit supply, having a negative impact on resuming the economic growth.
2. Romanian banking sector and the credit development
Romanian banking sector continued to be protected against various unfavourable developments that have occurred both locally and internationally. Romanian banking sector losses 2.3 billion lei in 2012, due to the substantial increasing of the provisions volume related to the credit risk, amid increasing the volume of the non-performing loans, respectively, of the guarantees revaluation.
However, the large banks have generally managed to remain on the profit. Decreasing the provision expenses in relation to the same period in 2012 and reducing the funding costs, amid improving the perception on the Romania's sovereign risk led to the passage on the profit of the Romanian banking sector, in the first eight months of 2013.
Because the financial results to maintain positive in the long term is necessary the sustainable resumption of lending to the private sector, this represents the essential condition.
The relatively high level of the non-performance ratio that unfavourably affects the bank profitability is due to the maintenance in the portfolio of a significant share of the debtors, including those who have demonstrated that they have a very low probability of further payment.
Banks have used the restructuring or rescheduling solutions and enforcement on the relatively large scale, but the effectiveness of these techniques for the management of the non -performing loans remained below the potential, until now. It is possible that other two solutions used less by the banks - assignment of debt and debt cancellation – to have better efficiency in cleaning the balance sheets. The most important positive effect when using the mentioned solutions should be to improve the image of the Romanian banking sector by reducing the low-quality stock of assets.
Increasing the demand for the loans in lei, beside the new implemented measures by the NBR since 2011, motivated both by exchange rate risk which may affect the repayment capacity of the borrowers uncovered to the currency risk, and the need to align the recommendations in the field of the European Systemic Risk Board , have contributed to a more balanced dynamic of the new granted funding flow.
From the survey on lending to the non-financial corporations and population in February 2014, published by the National Bank of Romania, we can note that demand for loans by the companies and the population for the consumer loans increased, while there are not experienced significant changes in the case of the real estate loans. In the short term, during January-March 2014, the banks had a decreasing funding demand from the compa nies and a stabilized demand from the population, regardless of the purpose of the loan (mortgage or consumer). The credit standards remained constant during the period October-December 2013 which may signalling the end of the tightening cycle that began in early 2013. Demand for loans increased moderately during that period, in the aggregate level, amid advance loan demand from large companies (corporations), regardless of their maturity.
3. Lending to non-financial companies in the period 2013-2014
During October-December 2013, the credit institutions in the euro area continued to tighten up the lending standards of the non-financial companies, but observing a decreasing of the tightening up. The risk associated with the sector of activity of the company was the main factor leading to the continuing trend of tightening.
According to local banks in the period October-December 2013, the factors underlying their decisions amending lending standards were:
- The current situation or expected of the bank's capital; - Monetary and prudential policy decisions of the NBR; - Expectations regarding the general economic situation;
- The risk associated with the industry in which the company operates; - Modification of the share of the nonperforming loans in the bank's portfolio; - The risk associated of the collateral/security required;
- The risk associated with a rapid increasing or decreasing of the real estate prices (only for secured loans by mortgages on commercia l real estate);
- Competitive pressure in the banking sector; - Competitive pressure in the non-banking sector;
- Competition with other sources of funding (capital market and shareholders).
During January-March 2014, the credit institutions in the euro area maintained the unchanged credit standards. In the first months of 2014, banks reported a large decreasing of the funding application at the aggregate level, amid decreasing the demand for most types of loans, excluding the demand for short -term loan by corporations.
- The value of credits in lei for the economic agents in January 2014 was 49,479 million lei, respectively with 304.8 million lei more than in January 2013;
- The value of outstanding loans was higher with 1714.2 million lei in January 2014 compared to January 2013. Outstanding loans refer only to the principal and not include off-balance sheet positions. There are considered the outstanding loans those that recording delays for payment at least one day, when there is made the report in the last day of the month;
- Both the current loans in lei and the current foreign currency loans granted recorded in January 2014 a decreasing;
- Regarding the value of loans in the foreign currency to the economic agents, in January 2014, they had a value of 64081.1 million lei, decreasing by 6190.7 million lei compared to January 2013. Evolution is mainly due to the measures taken by the central bank, which requires a more prudent conduct regarding the conditions for granting the credit to the credit institutions and to the non -banking financial institutions, especially for the segment of foreign currency loans given to the people uncovered naturally on the currency risk (both individuals and non-financial companies), including a mandatory component of the customer information on the impact of the national currency possible severe currency devaluations on the level of the periodic payment obligations;
- Also, the value of the outstanding loans in the foreign currency in January 2014 was 2394.3 million higher compared with January 2013.
Structure of the non-banking and non-gover nment customers loans Table no. 1 - million lei -
Row JANUARY TOTAL 2014 TOTAL 2013
1 Loans in lei
(row2+row3= row4+ row5= row6+ row7+ row11)
86033.4 84957.4
2 – current 72832.3 73470.5
3 – outstanding 13201.1 11486.9
4 – residents 85945.4 84604.2
5 – non-residents 88.0 353.2
6 – business 49479.0 49174.2
7 – population, of which: 34587.5 34160.2
8 - consumption 22998.4 23958.6
9 - housing 3711.2 1853.6
10 - other purposes 7075.8 7500.0
11 – others 1966.9 1623.0
12 Loans in the foreign currency
(row13+row14=row15+r ow16=r ow17+r ow18+r ow22) 134261.0 140737.8
13 – current 114089.4 122960.5
14 – outstanding 20171.6 17777.3
15 – residents 132768.5 138785.3
16 – non-residents 1492.5 1952.5
17 – business 64081.1 70271.8
18 – population, of which: 68804.3 69301.1
19 - consumption 30383.6 33152.4
20 - housing 37472.4 35085.2
21 - other purposes 648.4 757.2
22 – others 1375.6 1164.9
Based on the data from the table above we present graphically the structure of loans in lei and the foreign currency loans structure:
Structure of loans in lei Chart no. 1
0.00 10,000.00 20,000.00 30,000.00 40,000.00 50,000.00 60,000.00 70,000.00 80,000.00 90,000.00 Loan s in
lei t otal
– u rrent
– ou tstan ding – resid ents – non-r eside nts – usin ess
– po pulat
ion
– othe
rs
2014
2013
The phenomenon of contraction of the lending activity recorded in Romania in the last three years is in line with trends reported in the euro area and in the most countries in the region, against the background of the macroeconomic developments still difficult internationally, affecting both credit demand and the standards and lending conditions applied by the commercial banks, continuing the non -intermediation process, the efforts to achieve the parameters requested by the transposition into national law of the capital agreement Basel III, and the management of a significant amount of nonperforming loans at the level of many economies in EU.
In February 2014 the Board of Directors of National Bank of Romania reduced the interest of the moneta ry policy from 3.75% to 3.5% per year, which could encourage firms to access loans for investment, the impetus given by the interest reduction.
Structure of the loans in the foreign currency Chart no. 2
Loan s in
the fore
In the analyzed period, the structure of the demand deposits in lei and foreign currency was as follows: - Demand deposits in lei of the economic agents traders had an upward trend in January 2014 with a value of 4952.2 million lei compared to January 2013 which explains through the interest paid by the banks on the deposits in lei, compared to those in the foreign currency;
- Demand deposits in the foreign currency increased with 522.3 million lei in January 2014 compared to January 2013.
Structure of the demand deposits in lei and foreign currency Table no. 2 - million lei-
Row JANUARY TOTAL 2014 TOTAL 2013
Demand deposits in lei 45545.3 37054.5
1 – economic agents 26342.0 21389.8
2 – population 15971.5 13043.2
3 – others 3231.9 2621.5
Demand deposits in the foreign currency 22089.2 20831.8
1 – economic agents 10037.2 9514.9
2 – population 10692.6 10196.2
3 – others 1359.4 1120.8
In chart no. 3 it can be noticed the evolution of the demand deposits in lei for the economic agents and population in January 2014 and in January 2013:
Structure of demand deposits in lei and foreign currency Chart no. 3
2014
2013
lei
foreign currency
0.0 10,000.0 20,000.0 30,000.0 40,000.0 50,000.0
4. Conclusions:
The main challenges in terms of lending in this year, according to the Executive Director of Piraeus Bank - Cătălin Parvu – are: identifying a new direction for the sustainable lending, insolvency phenomenon, appropriate management of the non-performing loans.
The sector of the company is exposed to the foreign currency risk in a considerable degree, because only a small part of companies obtain foreign currency income from exports. Therefore, in 2014, the trend of accessing credit in lei will continue to maintain, which is explained by th e effects of monetary easing, with implications for the cost of loans.
Since last year, the economic analysts estimated that the inter-banking interest for lei will be reduced due to the decline in inflation, which should generate a more accentuated cheape ning of the loans in the national currency.
From the study conducted on the lending to the non -financial companies, we can conclude the following:
- loans in lei given to the economic agents in January 2014 was 49,479 million lei, showing an increase in the amount of 304.8 million lei compared to January 2013;
- the value of the outstanding loans was higher with 1714.2 million lei in January 2014 compared to January 2013;
- both current loans in lei and current foreign currency loans recorded in January 2014 a de crease; - the foreign currency loans given to the economic agents in January 2014 had a value of 64081.1
million lei, decreasing by 6190.7 million lei compared to January 2013;
- value of the outstanding loans in the foreign currency in January 2014 was with 2394.3 million lei higher compared to January 2013;
- demand deposits in lei of the economic agents had an upward trend in January 2014 with a value of 4952.2 million lei compared to January 2013;
- Demand deposits in the foreign currency increased with 522.3 million lei in January 2014 compared to January 2013.
5.
References:
1 Cezar Bazno, Nicolae Dardac, Constantin Floricel – Monedă, Credit, Bănci, Didactica şi Pedagogică Publishing House, Bucharest, 1999, p.153;
2 Căpraru Bogdan - Activitatea bancară. Sisteme, operaţiuni şi practici, C. H. Beck, Publishing House, Bucharest, 2010, p. 2 -3;
3www.bnr.ro/Credite şi depozite în profil teritorial –January 2013; January 2014/sectiune statistica; 4 www.bnr.ro/Raport on the financial stability 2013, p. 47
5 www.bnr.ro/Sondaj privind creditarea companiilor nefinanciare şi a populaţiei pdf, February 2014, p.3-4 6 NBR Regulation no. 11/2011 published in the Official Gazette, Part I, no. 684 of 27.09. 2011 concerning the classification of loans and investments and the determination and using the prudential adjustments of the value
7 NBR Regulation no. 17/2012 regarding some lending conditions, published in the Official Gazette, Part I, no. 855 of 18/12/2012.
