Annals of “Dunarea de Jos” University of Galati Fascicle I. Economics and Applied Informatics
Years XXII – no3/2016
ISSN-L 1584-0409 ISSN-Online 2344-441X
www.eia.feaa.ugal.ro
Ways to Increase the Efficiency of Lending Activity of
Banks in Romania
Elena-Violeta DRĂGOI, Larisa Elena PREDA
A R T I C L E I N F O A B S T R A C T
Article history: Accepted November Available online December JEL Classification E , G , G
Keywords:
Bank, Crisis, Credit, Performance, Risk, Policy
As important part of the financial system, the banking sector has undergone negative in terms of quality loan portfolio, changes resulting from the difficult economic climate, particularly by the slowdown of economic activity and national currency depreciation. Regarding credit policy is discussed certain measures aimed to restore the economic balance in order to achieve a certain level of economic growth. The paper approaches the ways of continuous improvement of loan portofolio quality and achieving achieving efficient lending policy effects.
© EA). All rights reserved.
1. Introduction
Due to the financial crisis that led to a major deterioration of the economy, Europe's banks are still struggling to get performance in a rapidly changing industry. )n fact, global banking sector was faced with a number of problems since , problems which led to further reduce the net profit of the sector.
Many factors have forced the banking system of European countries to a negative profit. Rectifications and harsh new taxes introduced in some European countries were the main factors.
Before , interbank market has been very active and banks were loaning money with great confidence. The situation has changed since then, and many banks are facing serious problems finding liquidity sources other than deposits. Many countries have experienced either a significant decline in the rate of profit or the recession in Romania .
Authorities in Romania using a set of economic policy instruments that measure and shall contribute to achieving macroeconomic stabilization.
To stabilize means to restore one thing at stability. )n terms of the economy we can talk about specific measures aimed to restore the balance economic to achieve achieve a level of economic growth in the long term, while struggling to maintain price stability, and aiming at reducing or eliminating budget deficits and trade balance. This process of macroeconomic stabilization is substantially influenced by monetary policy measures adopted, also their degree of consistency and the level where authorities are involved in their application fail to work together to achieve goals.
Therefore, macroeconomic policy is represented by all measures and instruments adopted by the authorities of a country in order to achieve a desired level for the respective economy.
Economic policy is a state intervention, the result being to achieve certain objectives of conjectural and structural order. )f we were to talk about the ideal objective, which would lead to a full macro stabilization, it would be the provision of long-term economic growth, given that employment is achieved, a state budget and a balanced trade balance and price stability.
2. Premises of lending activity - loan policy
Lending activity is closely linked to the institutional banking and credit policy, the basic objective of european integration. Credit policy is done by the National Bank of Romania and is part of the wider context of "monetary policy, currency, credit and payment" in compliance with the mandatory rules of the law on the status of National Bank of Romania. Credit policy is administered by the central bank with tools and techniques, which aims to ensure, by promoting credit functions, general economic equilibrium of society R.
Postolache, :
a open market operations, the secondary market:
• reverse operations;
• direct purchases/sales, the acceptance to extend collateralised loans, claims or securities of the State, central government and local autonomous administrations, national corporations, national companies and other majority state-owned companies, credit institutions or other legal persons;
• currency swaps;
• issuance of deposits certificates and collection of deposits from credit institutions, under which it deems necessary to achieve monetary policy objectives.
b lending operations. They are credited only credit institutions, including those by majority
ownership by the state, eligible under conditions to be determined by its own regulations, being excluded, including overdrafts, state, territorial administrative units, central public authorities and local autonomous administrations, national corporations, national companies and other majority state-owned companies ). Nicula, . Within enter their lending, in terms of repayment, interest level and what stabilcsc its regulations and which do not fall under the regime established by O.U.G. no. / on credit institutions;
c controlling liquidity through minimum reserve system, which banks are required to establish and
maintain them in accounts with the central bank. NBR establish their regime and charge interests at least the average interest rate for deposits with credit institutions. Reserve requirements are designed to ensure minimum liquidity ratios of banks that are established with their depositors. As a monetary policy tool, they act on limiting banks' ability to multiply customer deposits in the money creation mechanism. Also, the National Bank of Romania has the function of currency center, realizing:
• development and implementation of exchange rate policy;
• establishing and monitoring compliance with the foreign exchange regime in Romania, including the status of national currency convertibility;
• preservation and management of international reserves of the state.
Knowing these tools and their proper application, depending on the actual development and economic conjuncture, will allow credit exercising its role of mobilizing factor and regulating economic life.
By the specific instruments of monetary policy, the National Bank of Romania continued to actively support the sustainable resumption of crediting the real sector. The signals transmitted to the banking sector have resulted in increased flows of financing in national currency at low interest rates to historic lows. Prudential measures adopted on the line of credit in foreign currency have resulted in the steady decline of the stock of foreign currency loans with beneficial effects on reducing balance sheet vulnerabilities in the banking sector.
The year marked a stock decline of loans, mainly as a result of the effort of cleaning the balance sheets of banks conducted by direct reduction of loans irrecoverable, fully or partially with adjustments for impairment. During the current year there is an increase in lending to the real sector, amid negative output gap and strengthen the positive parameters that characterize the domestic macroeconomic environment. The influencing factors on the supply side, the effect of restricting flows of credit to the economy, consisting of balance sheets to prudential requirements concerning capital adequacy and liquidity, and maintaining a prudent in lending, amid eligible applications inadequately identified.
National Bank of Romania continued to support the sustainable resumption of crediting the real sector through specific instruments of monetary policy: monetary policy rate was reduced by basis points during the mentioned period from . % in June . % in June , as a signal to commercial banks in order to reduce the cost of lending in national currency in tandem with the improvement in the domestic macroeconomic environment; reserve ratio applicable to the liabilities in lei of credit institutions was reduced gradually from % to % and the applicable foreign currency liabilities was reduced from % to %, with the objective to increase the amount of resources available for lending to the real economy.
3. The credit portfolio of banks in Romania
The role of credit in the economy is represented by economic results achieved by the expression of credit relations and the contribution that it has in achieving the objectives of economic policy.
The way banks allocates funds they manage may influence decisively the economic development locally and nationally. On the other hand, any credit institution assumes, to a certain extent risks when granting loans and, of course, all banks recorded routinely losses on the loan portfolio, where some borrowers do not honor their obligations. Whatever the level of risk assumed losses from the loan portfolio can be minimized if lending operations are organized and managed professionally. Thus, from this perspective, the most important function of bank management is to control the quality of the loan portfolio.
The weak credit quality is the main cause of bank failures following possible defining test cases C.
Gheorghe, , p. :
carelessness in formulating lending standards;
the existence of too generous credit conditions and the lack of clear regulations; non-compliance with internal lending by bank staff;
the weak control exercised over staff inspectors ;
excessive increase in the loan portfolio over the possibilities of the bank to cover reasonable risks; damaged or inexistent systems for detecting problematic credits;
lack of customer cash flows;
preferential loans under market conditions .
)n Romania, the period - , GDP grew by about billion lei, and on account of the increase in GDP occurred some changes in terms of banking assets and credit to the private sector. Thus, bank assets fell from billion in to billion lei in , while credit to the private sector fell from billion
lei in to billion lei in .
The banking community in Romania considers that, especially in the context of international finance current, it is recommended to maintain confidence in the investment climate conducive to growth of financial intermediation that benefit people, companies and the Romanian state, so as to contribute to the economic development of Romania and raising the living standard of each consumer individually. Non-government loans continues to decline, the annual rate, while the rambusările principal balance sheets and cleaning exceed the new loans.
Chart 1. Bank assets and loans to private sector
Source: NBR
)n Romania, banks provide about % of financing the economy. At European level, the banks represent about - % of the entire financial system in the EU, while in the US, companies are financed through a bank loan at a rate of only %.
Chart 2. Financial intermediation
Source: NBR
4. Ways to optimize the lending activity
permanent feedback that bank management is informed about the effectiveness of credit quality control process so that the problems to be detected and corrected in time.
Because a bank lending policy prove useful, not just an academic exercise, it must meet the correct forms and complete content. )t can be appreciated that as fair lending policy which gave priority to achieve the following objectives:
selection of safe credit and a maximum probability of repayment; selection of successful investments for the funds available to the bank;
encouraging the extension of credits that meet the needs of markets where the bank operates.
Lending policies vary over time and depending on the economic cycle. They should be updated and become adaptable to the economic and competitive environment. Any credit is an anticipation of future receipts. From this perspective, any credit risk that these payments are not carried out at all or in part. This risk is known as the risk of insolvency of the debtor; it is essential in banking, because the main function of a bank is to grant credits.
5. Management of lending risk
Credit risk mainly designates risk that a counterparty to meet its payment obligations to the bank, or a worse quality of an issuer or counterparty.
Credit risk management is integrated into a bank's risk management process at group level of the bank. Some of the important principles used in credit risk management are:
analysis and approval the launch of new products and activities which generate risk by the bank management;
using clearly defined criteria for credit granting, by type of client, involving both detailed knowledge of the borrower and the credit destination or source of repayment, the application of real or personal guarantees to mitigate credit risk to acceptable levels ;
Well formalized processes for credit approval, including a clear system of approval powers; continuous monitoring of exposures at individual or group level exposures where appropriate; regular monitoring and reporting, the bank management, the quality of credit portfolios; regular monitoring and reporting, the bank management, the quality of credit portfolios;
identify and manage non-performing loans and various aspects resulting from this activity using objective evidence.
The credit division L. Badea, V. Dragoi, I. Driga, A. Socol, 2010, p. 87) seeks to avoid lending risk
exposures by diversifying investments and loans in particular. Concentration of customers in one area of activity is relatively dangerous for a universal bank: in the period of recession may intervene operating weights. )n the sphere of crediting individuals, portfolio diversification is primarily a territorial diversification. Credit traders is important to sectoral diversification and economic and sovereign clients in terms of - geographic diversification. On the other hand, it may happen that large enterprises need credit to the commitment exceed reasonable limit of a single bank.
Limiting risk is normative and self-regulation. Each credit institution, depending on the quality of the
economic environment and the evolution of its parameters, limits the risk in two ways, comprehensive and analytical as follows:
¾ fixed its own internal limit for share of activities investments or relatively risky assets in the total
banking capital;
¾ setting ceilings loan borrower, group of borrowers, sectors or geographic areas to prevent significant
changes in the economic situation of these groups to affect negatively their exposure.
Can prove very helpful and internal limits set on the basis of crisis scenarios, nondescript limits when the crisis occurs; preferably the bank to be prepared for the event of a crisis, no matter how unlikely it may seem that in a given context. On the other hand, the central bank, the banking authority assumes responsibility for limiting exposure to risk in the consolidated banking system by setting mandatory regulations. Banking prudential rules aimed at large loans to customers by banks and are in line with European standards in force.
6. Conclusion
Prudential policies are therefore essential, but not sufficient to protect economies to external shocks. )mproving economic fundamentals can be done in normal times, but remains insufficient control external factors. Once the crisis broke out, it has not been possible correction baseline, remaining one posibiltati to overcome this period: limiting contagion by adopting an appropriate mix of economic policies to restore confidence and thinking ahead to a new financial architecture sustainable.
real estate and increased demand for loans mortgage lending led to a level above, indebtedness and, finally, to
the crisis.
The recession was caused mainly by lack of loans by banks and falling housing prices. Due to the fact that many firms went bankrupt, the banks have lost a good portion of income being reluctant to grant credit.
To reduce the risks they are exposed to account holders, they should apply the criterion of diversification of investments. Deposits, like any other investment should not be concentrated in a single bank or in one tool but diversified. Also to reduce risks and banking authority has well defined role, namely to ensure the existence and operation of a safety net to minimize systemic risk and to protect account holders less trained.
Some main courses of action to streamline lending policy we consider is:
Continuous improvement of quality and efficient realization of the effects of monetary policy actions through analysis, implementation and communication processes inflation targeting;
Overnight interest rate stability and liquidity support for the banking system must be guaranteed by the capital markets;
Banking operations of the central bank must focus on effective and ensuring monetary and financial stability;
Ensuring safe and effective circulation of banknotes to meet the targets on the integrity and quality of the bank;
The bank must have a clear framework to be identified and reduced financial stability risks;
The central bank should be ready with measures to strengthen economic activity when there are financial crises;
Bank must promote the efficiency of payment and settlement systems; Must be sought continuously improve internal business processes.
References
1. Badea, L., Dragoi, V., Driga, I., Soco, A. - Banking Risk Management, Economic Publishing House, Bucharest, 2010;
2. Constantinescu Lucreţia Mariana– Risks Management into the International Trade in Tourist Services”, Army Academy Review, section: Management, no.4 (64), pp.386-392, 2011, ISSN 2247-840X, ISSN-L 1582-6384.
3. Gheorghe, C. - Drept bancar, Editura C.H. Beck, Bucureşti, 2006;
