Are banks in Romania well capitalized or not?

This is a subject I tackled few times before but it keeps coming back: the health status of the Romanian Banking Sector . The latest discussion about this topic was spurred by comments from the local head of supervision department at NBR.

He is quoted in Bloomberg saying: “All the banks, especially the Greek ones, must be prepared to face contagion, even though they are well capitalized right now. It’s a matter of credibility,” Cinteza said in an interview. “If one of the parent banks has problems, the Romanian units can be affected, that’s why we advise them to have strong cash reserves.”

I expressed a similar opinion before here: Is the Romanian banking sector better supervised/regulated than most?  and Are Romanian foreign debt and deficit much higher? But there is something odd in his recommendation.

On the one hand he talks about the need for extra capital if the parent banks have problems and on the other he says that local banks are well capitalized right now. Which one is it? What is happening with current capitalization if parent banks have problems? Theoretically and if we are to believe the recent rhetoric from few people at NBR the banks in Romania are Romanian banks and nothing that happens outside shall harm them. If they are well capitalized now they should remain well capitalized in the future. But now something has changed in the NBR’s view.

But not in my view. Capital will circulate freely and if there is a need to finance an operation at home a parent bank will withdraw its support for subsidiaries elsewhere. Being well capitalized today is irrelevant for a subsidiary unless Romania imposes capital control.

The problem could be even more complicated and with big costs for the Romanian tax payer. Here are the
two dangers I see as we go forward:

1) Parent banks will withdraw capital in case they dearly need it

2) Local banks are not well capitalized today

What policy makers can do today is to prepare for both scenarios together or separately. I hope behind close doors and their calm demeanor our policy makers already have the solution for this cases ready. Also, I hope it does not mean that we follow the Irish way and pay for it with our own money. We are too poor to support such an action.


7 thoughts on “Are banks in Romania well capitalized or not?

  1. As far as I know (as former bank third party), Romanian units have impressive default rates and problems because of that. They threw money in the market at interests we all know and then expecting just a redistribution of the money accordingly to the credit portfolio. In other words, betting on infinite growth, especially of the real estate market. Of course, main problem with majority of this money is that they are not REAL money.

  2. @CNN

    “Of course, main problem with majority of this money is that they are not REAL money.” -> Explain this to us, plz :).What do you mean by real and not real money?

  3. some pieces to the puzzle:
    – some banks announced capital increase lately (vlksbnk, bcr) other expansion plans (unicrdt);
    – some also voiced frustration that lack of demand in romania makes them uneasy about stashing money here. so huge capital is nice but it’s so much you can reasonably ask…
    – NBR still has Minimum Reserve Requirements instrument at hand

    Seemed to me statements of Mr. Cinteza rather pointed at liquidity than capitalization.

    To be honest, if I’d be in the NBR i’d pressure for asset sales (esp greek banks huge portfolios of Real Estate). you liquidize them by force, so what? it’s in the direction of the market anyway…

    1. @jb

      It could be, although NBR should be able to provide any amount of liquidity in RON. This in turn can be exchanged for euro. Of course this works if you do not have a terrible rating like some local banks have.

      Sent from my iPhone

  4. @Lav: on behalf of whom (more than yourself) are you speaking / writing?
    For instance the large majority of money used for loans in Romania came from abroad, were not produces by Romanian economy. Furthermore this money was not used to create added value.
    Now, allow me to ask you: are you a bank employee?

  5. CNN, I thought is about the subject not about the person :).

    And if I were a bank employee, what? Florin was one too :). He shares some of the characteristics, but he can be a nice person sometime, and at least you can gossip with him, which is a great quality in human beings :)). Actually, I’m not an employee, at all, I’ve never been, and I’m not a fan of banks and bank’s employees also, although we don’t seam to share the same reasons.

    I was just asking, because I couldn’t understand the difference between real and not real money. And, btw I share your frustration regarding the euro denominated loans, but we should ask the BNR why did their interest rate have always been so high in the international context, and the exchange rate completely unreal, from the very first beginning. Which makes the euro denominated rate, in lei, because we gain our existence in lei, really small compared to the lei denominated rate, and makes people choose the euro loans :(.

    Btw, money from some loans create or not value is not the problem of the bank, but the problem of who’s asking for the loan, and what does he intend to do with the money. Plus the average efficiency of the romanian employee and management.

  6. And, btw, I insist that all the money are real, doesn’t matter their currency denomination or if they come from thin air. As long as they can buy something, they are real money :).

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