Volksbank Romania is refurbishing its offices in a minimalistic style, which should actually be embraced by whole country’s financial industry, and waits for would-be investors. The detail is far from trivial. The move was reportedly inspired by a survey aimed at identifying the perception of the bank among its customers. Indeed, the perception is important in business. We are however afraid that the problematic perception – of the whole banking industry as a whole, has more to do with commercial details and less with banks’ furniture.

As we said, the detail is far from trivial. Distrust dominates the relationship on the credit market. Banks trying to recover the past losses from high loan rates do not help in this regard. Nor the companies’ reliance on insolvency procedures does. Central bank’s promise to cut the policy interest rates will also hardly improve the situation. Probably only when their customers will seek banking services abroad [on both savings and borrowing sides] will local banks reconsider their policies and develop under a different strategy than the one followed in the pre-crisis period. The EU directives are helping local legal and natural persons to seek financial services abroad but this is limited to migrant population [natural persons] only for the time being and for large companies [legal persons]. But wide interest rate differential will eventually not remain without arbitrage.

Other small adjustments are taking places on the market -- even certain consolidation deals, but no hectic activity is seen on the country’s credit market. Households keep saving ahead of even more gloomy times, banks use this opportunity to ship money back to their financial groups abroad and close down branches. Unexpected bright Q1 CA and GDP figures prompted certain short-lived buoyancy. Projections about expected resumption of financial intermediation, always some six months ahead, are periodically issued by bank experts. But all the banks do, is managing bad loans and insolvency of their customer. Except for mortgage loans under state guarantees, the lending activity hardly covers the re-payment of old loans. And yet, they managed to recover to profits after record losses in 2012.

However, the losses reported by local branches of foreign financial groups do not account for the interest paid by these local branches to parent groups for the resources extended in the past. Foreign banks’ exposure to Romania was some USD 30bn at end-2012. For 3pps [not including the financing cost] risk margin charged to Romanian branches, this means USD 900mn charged only for the risk. This entirely covers the EUR 530mn losses reported last year by the whole Romanian banking system.

RBS Romania sold its retail branch to Raiffeisen, Piraeus sells the brand and offices to local investors and Marfin takes over local business of bankrupt Bank of Cyprus. All this time, the stock of loans stagnates and the share of bad loans rises significantly: loss-type loans are already one quarter of total.

BIS data confirms sharp deleveraging of BIS-reporting banks vis-à-vis Romanian banks.
“A sustainable rise in lending could, however, dilute the share of NPL but this depends on the confidence of both sides - banks and borrowers. Unless the banks are committed to restructure or sell out bad loans they will remain under constant need of building up provisions with the effect of rigid [and small] profit margins.” – c-bank first vice-governor Cristian Popa