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BNR's Isarescu: Lending to poorly capitalized companies, simply jail for banker; solution - enterprise reform

Inquam Photos / Octav Ganea
Mugur Isarescu

Banks have money, but they cannot lend to poorly capitalized companies, that cannot give the money back, so the solution is enterprise reform and the rebuilding of confidence between the business environment and the banking sector, Mugur Isarescu, governor of the National Bank of Romania (BNR) told a press conference, potrivit agerpres.ro.

Isarescu presented on Wednesday the 2018 BNR Annual Report and extensively addressed the subject of the relationship between banks, the business environment and the population, arguing that in the last period there has been a total lack of trust, fueled by populist statements of some politicians.

"From a 150 percent ratio between deposits and loans as it was immediately after the crisis, we have now reached 70-75 percent. In other words, until the crisis, we were complaining, we, at the National Bank, included, that there aren't enough financial resources, and we have no money, now, at 70 percent, we have money, but we do not have whom to credit. This is how the banks complain. We do not believe that banks are totally right. We have structural problems indeed, few bankable companies. We cannot force banks to lend to a company that does not have the credibility that it will give back the money," the governor said.

He specified that this is the landscape across Europe, where lending has greatly toughened.

"On the other hand, we have a situation that concerns us, there is a surplus of resources and few beneficiaries. Of course, the solution is a structural reform of enterprises, but here too there are risks. We presented this opportunity in the autumn of last year in the stability report, and a Mr. senator understandood that banks are undermining the national economy that they do not give credit anytime and anywhere. We went, I explained the situation, then he went out and said the same thing and went on for a few months. So it is clear that this is a misunderstanding: the situation is not, so to speak, and I quote from a contemporary: it is not simple but complex. The truth is on both sides," Isarescu said.

He affirmed he will try to bring to the same table representatives of the banks and of the business environment in order to solve this problem.

"We have to find a way to solve the problem. There is money. Until we bring them face to face, two things must be understood: One: especially now in Europe, banks are hardly giving long-term loans. Banks are not investment partners, they are bankers, they give credit. For this reason, there is a great emphasis on capital markets in Europe," the governor said, stating that Romanian stock exchanges are far from that desideratum.

"The desire of many businesses is to take 20-year term loans to develop. This is not what commercial banks can do. Maybe a development bank. We have in exchange guarantee funds that could intervene here. So, with the same words, the situation is not simple but complex. We should discuss, but let us discuss it with normal, economic judgments , not with desires that cannot solve the matter," Isarescu went on to say.

The second aspect the governor wanted to highlight is the caution with which banks assess companies.

"To credit a poorly capitalized company or with negative capital is ... let's just say that it is simply jail for a banker. How can one ask for something like that? Should we not have a proper reform of companies then, force them in a way to capitalize? All these elements are clearly included - for experts, it is true - in our stability report. Because they know what troubles us and also what is bothering the political class, included, but I can only take this commitment to get together," the head of BNR said.

He added that ordinances such as 114 only worsen the situation.

"Always clashing the banks, the society and the enterprises against each other, this is not the solution, as bankers do have a responsibility. They are accountable for the depositors's money, they answer with their head, so they cannot credit in any way they see fit," Isarescu considers.

The governor repeated the idea that there is money in banks.

"There is also the belief that banks do not give money to companies because they give it to the state. Butt if they did not give money to the state, they would give it to other states, they would buy securities abroad, as they have to do something with that money. And, from a country with a current account deficit, we end up being capital exporters. It is very good that the banks give to the Romanian state," says the central bank governor.

At the end of the conference, Isarescu returned to the topic of financial intermediation, asked by journalists if BNR can take measures to relaunch the lending of companies.

"I have not said, to make it clear, that the whole motivation of credit to enterprises, on a downward trend, stagnant or having a slight growth, is due only to structural or enterprise-related causes. If this is how it was understood, I correct myself. The cause is not only there," he said.

In his view, the banks, which have become overly cautious, also bear the blame, but also some politicians, with their populist statements, who have weakened the confidence in the banking system.

"Other causes are related to the banks' behavior. It is clear that they are overly cautious. That's why my message is positive: let's get together here and rebuild trust. Nothing can be done without trust. By paraphrasing Marin Preda: if there is no trust, there is nothing in the banking field. There is no way to rebuild the credit. (...) There is no way to lend, either at enterprise level, or for dwelling, or at the population's level without trust between the partners. That's why we said that this avalanche of legislative initiatives promoted, let's clearly say it, by non-specialists, by people with whom it is hard to talk, that is, you discuss something and they ... they have overly populist approaches. Populism is everywhere in Europe, we are not going to say that it's more in Romania. But it has taken some strange forms in our case. (...) We will try this summer and in autumn to bring together [the sides, ed.n.] and rebuild confidence between banks and corporations and between banks and the population," Isarescu said .

Another problem is related to the insufficiently prepared staff of the banks, the head of the National Bank of Romania added.

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