As a skeptic and contrarian I am used to being ridiculed most of the time even though the reality more often than not rests closer to my views. Thus you can imagine my pleasant surprise when I read this title in the news today (in Romanian):
“Mugur Isarescu: Poor banking sector competition allows banks to transfer costs from internal inefficiency and poor risk management to clients”
In a nutshell MR. Isarescu just confirms my view that banks in Romania function in an oligopoly structure. All this means that instead of accepting the market price they are imposing the price of credit.
Now the question remains: should the NBR stop at just aknowledging this situation or should it do something about it?
From my point of view the NBR should have at heart the interest of the consumer. But how would a regulator impose competition? There is only one non-intrusive way: allow for insolvent banks to fail. In the same time make sure that ALL banks play by the same rule and ALL abide to the same rules.
It might be hard to recognize but there is some responsibility with the NBR regarding the current banking sector structure and lack of competition in Romania. Banks can sustain an oligopoly as long as:
-the NBR plays favorites whne intervenes in the FX markets
-the NBR uses bylateral deals that funds few banks in the market while other use the money markets to fund themselves
-the Ministry of Finance needs the local banks to finance its debt, thus NBR lowers the cost of funding or the MF and imporves the bank’s margin via repos or bylateral funding deals
-the NBR is proping up insolvent banks
All of these “favors” allow the banking sector to remain an oligopoly and even more: not to play by the rules. Today the NBR has done a first step by pointing to the non-competitivness of the banking sector. To get to a competitive one more is required from NBR and other public institutions. After all if we want to have a healthy economy in the future we need a healthy banking sector which will be delivered only after this sector will really restructure.
The rest of the economy has been restructuring for 2 yrs, let’s allow the banking sector to restructure also.
This is what I said about this subject before: