BusinessMagazin

Tag: bankers

  • Don’t Knock the RON off it’s Stand

    At the beginning of this year, in the midst of pessimistic economic forecasts and with the recent experience of the October depreciation of the RON, many experts (and BUSINESS Magazin readers, as well) were willing to believe it would be difficult to avoid an evolution of the exchange rate towards 5 RON/euro in the first half of the year. However, when we asked bankers in January to give us an exchange rate projection, not only none of them predicted a rate of over 4.50 RON/euro, but the majority went no further than 4.30 or even 4.10 RON/euro.

    Eventually, reality matched the bankers’ predictions, with the exchange rate remaining at 4.2067 RON/euro on June 30 – decidedly very far from the ideal levels of 3.1 RON/euro in the summer of 2007, but also very remote from the apocalyptic scenarios of 5 RON/ euro or even higher. Now, history seems to repeat itself: after forecasts on the economic progression have changed several times over the last few months, and an 8% economic decline has become an official scenario, while the budget deficit is widening day after day, a collapse of the RON is something that many Romanians, especially those with loans in euros, continue to fear. In this context, it could be considered surprising that most commercial banks officials who agreed to answer BUSINESS Magazin’s questions gave moderate predictions that start from 4.1 RON/euro, and only on a few occasions reach 4.50 RON/euro.

    The explanation lies mainly with the fact that the main pressure factor on the RON last year, the large balance of payments deficit, lost its impact due to the crisis, which caused a slowdown in economic activity and, implicitly, generated a decline in imports. ”The adjustment of the balance of payments’ current account is significant, from 12.5% last year to less than 6%, perhaps even 4% this year – and has been more than 100% covered via foreign direct investment,” says Mihai Bogza, chairman and CEO of Bancpost. However, Bogza says that if the economic policies implemented by the authorities do not fall within the limits agreed with the IMF, the external perception will be that Romania’s economic imbalance will deepen again.

    And, if, under such a scenario, the IMF would cut off its funding, meant to pad the Romanian National Bank’s foreign exchange reserve, ”it is easy to imagine a scenario where foreign pressure on the exchange rate would escalate so much as to make the current level difficult to safeguard by the central bank,” says Mihai Bogza. As for how the Romanian economy will be affected by the evolution of the crisis worldwide, most bankers see the quality of economic policies to be implemented by the authorities as being decisive, a quality that cannot be judged without taking into consideration the risks posed by the electoral context of the next few months.

  • Inactivity is bad for business

    Coming from Herwig Burgstaller, vicepresident of Volksbank Romania, the announcement according to which the bank ”will turn overdraft into its main product” can seem a little odd. Over the last two years, the Austrians have stood out due to their aggressive approach to the market of lending for individuals with real estate assets put up as collateral, and this product in fact saw the bank go from being a small player to the third largest bank in the Romanian banking system.

    In 2008, the assets managed by the Austrians outgrew the market four times, amid an around 95% exposure to real estate. However, since the beginning of 2009, the bank has not granted any new mortgagebacked loan, according to Gerald Schreiner, executive president of the bank, given that clients are no longer rushing to banks, and that developers are no longer launching any new projects. This explains the change in strategy that Burgstaller is suggesting, but players in the entire banking system are in fact changing course as they go along after it became clear that the lending market is blocked (or merely it slowed down very abruptly, as bankers prefer to say).

    Under the circumstances, it is obvious that the thousands of credit advisers hired in the past few years (around 20,000 out of the 72,000 employees in the banking system, according to estimates made by Paraschiv Constantin, president of the Banking and Insurance Trade Union Federation), have to sell other products, at least for the time being. Similarly, keeping the over 6,500 branches and agencies in the banking system (of which over 1,000 were opened last year) does not make sense if they do not fetch a profit, instead entailing only costs. Shutting down a branch is, however, not an easy decision to make, considering that the investments involved in its opening were by no means insignificant.

    ”There will not be large-scale closures,” says Santiago Pardo Jimenez, a partner with Deloitte’s auditing department, in a talk to BUSINESS Magazin, arguing that ”they still have good business to do here.” According to him, sales will concentrate more on simple, lower risk products (such as cards, current accounts, Internet banking services), combined with a sharp focus on efficiency.