“We lend money only to the rich.” The truth about lending in Romania, revealed by a Romanian banker who worked in France.

Published in Ziarul Financiar, 10 January 2016

„We lend money only to the rich!” („On ne prête qu’aux riches!”). This phrase in French is almost the perfect mirror of financing for most businesses in the Romanian economy. Banks are most often willing to lend to those who have the least need. In fact, what is this? The answer lies at the crossroads of three major factors: the appetite for risk of the banks, the role of ”referee supporter” of the state and the climate of trust.

Banks’ appetite for risk

Romanian banks, being held in the highest proportion of international financial corporations, have risk policies imposed by parent groups, based mainly on relationships and experiences developed in their home countries and globally. These risk policy sets exposure limits on industries and groups of companies or individual, on company level (stand alone) and even the Romanian state. This explains the fact that many corporate businesses in Germany, Austria or Nordic countries are financed by BCR / Erste and Raiffeisen, most of the French ones are financed by BRD – Groupe Société Générale, BNPP and Crédit Agricole, Italians go to Unicredit, CEC Bank and Eximbank, Banca Transilvania deals mainly with Romanian entrepreneurs, while the financing of large infrastructure projects is neglected by too many banks. It is obvious that Transilvania Bank, CEC Bank and Eximbank have relationships with large international corporations, just as it is obvious that there were and still are many cases of Romanian entrepreneurs who have developed relationships with international banks subsidiaries in Romania, but this part is low compared to the overall landscape described above.
On the other hand, financing the infrastructure projects in Public Private Partnership scheme (PPP) or concessions require loans with maturities of 15-20 years, while in Romania no bank wants to finance for more than 10 years…We are facing a paradox: while in the Western states business with state institutions is regarded by banks as having the lowest risk level, in Romania is considered to be risky, despite the very good macro-economic indicators.

The state – a supporter referee

The State, through its specialized institutions, has not done enough as a referee between the banks and the business world, although it could mobilize the necessary resources. I remember that in France, a few years ago, the state has borrowed over 10 billion EURO to the banks for economic recovery by financing IMM. Why not doing the same, by using public funds, the state guarantee for the credit facilities with maturities over 10 years, or by negotiating with Brussels to allocate a part of European funds which are intended to Romania for such a step? Analyzing the activities of French Institutions such as Bank of Public Investment / OSEO or Business France, we realize what importance should the State grant for supporting local entrepreneurs.

Confidence

The biggest problem is actually the lack of trust between entrepreneurs and bankers. Trust is built over time, is earned and needs participation from both sides.

The banker profession closely resembles that of a doctor: the banker is the one who makes a diagnosis of the financial health of the client, knowing well his history, his business needs and, starting from very precise rules of financial analysis, comes with funding proposals and accompanies the customer on medium and long term. Transparency and trust must be total.

I have seen how large international corporations, worth tens of billions of euros, have grown, have been saved or “swallowed” their competitors with only banks’ help. In Western countries, the trust and solidity of the companies can determine banks to lend hundreds of millions of euros without guarantees.

In the business environment in Romania, the client does not tell the bank the whole truth regarding his needs and intentions and requires a financing solution that he has identified. In these cases, the banks get to propose solutions that customer does not need, requesting very high guarantees…so happens that in many situations, investment amortized in 10 years were funded with loans having a maturity of 3-5 years or even short-term credit lines (1 year), while the financial-banking market sits on a mountain of cheap cash.