Trust in Romanian banks
At the request of the Senates Economic Committee, the National Bank of Romania has presented the situation of banks operating in this country
Daniela Budu, 28.09.2017, 13:59
The National Bank of Romania has given assurances to the Senate’s Economic Committee that no bank in this country is on the verge of bankruptcy. The first deputy governor of the central bank Florin Georgescu has explained that the economic mechanisms and current legislation protect the population to the amount of 100,000 euros, while the capital of these financial institutions is sufficient following an increase in deposits in relation to lending.
The meeting of the National Bank officials with the Senate committee was held as a result of the amount of current interest rates and penalising interest rates charged by banks for delays in paying back loans. The National Bank officials explained that the decision to impose stricter rules for non-banking financial institutions (NBFI) came after lending via such institutions has exceeded 10% of the total amount of loans. The central bank’s spokesman, the economist Dan Suciu, said a non-banking institution providing loans at high interest rates would have to provide additional guarantees to cover the risk ceiling in case such credits become non-performing, meaning they can no longer be paid back by lenders.
Dan Suciu: “We haven’t set a cap on interest rates, but are trying to discourage high interest rates through internal regulations. This means that for every interest rate charged by a non-banking financial institution that exceeds a certain level, we impose additional capital requirements, which means the institution in question will have to put up its own funds to limit risks incurred by this high interest rate, for a high interest rate presupposes a high risk.”
The deputy governor Florin Georgescu says the persons taking out loans through non-banking financial institutions must be protected by the National Authority for Consumer Protection. He also advocated supporting these institutions because in the event of incidents on the market, there is a risk that instability may spread throughout the entire banking system.
Florin Georgescu: “Non-banking financial institutions cannot attract deposits from the population. They put up their own capital, but its level is not high, only amounting to 7 or 8% of total resources, and which they can use for lending. They attract funds mainly from banks, because many of them are branches thereof, entities that are organically linked to banks and established with shares from the parent bank, receiving lines of credit. If these lines of credit are badly managed and highly risky credits are granted out of these funds, the money doesn’t go back to the non-banking financial institution in question. Basically, this means a loss for the bank.”
On the other hand, the chair of the Senate’s Economic Committee Daniel Zamfir is in favour of imposing a cap on penalising interest rates. He argues that non-banking financial institutions in particular charge huge interest rates that become impossible to pay back. He thus initiated a bill that would establish a relation between the interest rate charged for loans and the interest rate charged for delaying the payment of instalments on loans.
