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In banking there are many risks and that is why banks need to be flexible and have as diverse an exposure as possible, which take the market circumstances at the time into account, says Radu Grațian Ghețea, President and CEO of CEC Bank. He told us, in an interview: "We have to adapt to what is happening in the market and we need to do things in such a way that the economic activity and that of the bank both function properly. If we're going with the idea that we want to eliminate every risk, then we'll just stop doing anything. For instance, we have been and we are a bank which heavily funds agriculture, which also means animal husbandry. A few years ago, our exposure to the aviculture sector was rather significant, and when the avian flu came we had to cover some non-performing loans on that segment. Now that the avian flu is done, we are facing the swine flu. What should we do, stop lending?"
Reporter: Lately, there have been opinions from some experts who are saying that there is a wave of non-performing loans of the ones taken out by the First Home Program. What is your comment on these statements?
Radu Grațian Ghețea: The First Home Program began a few years ago, with the government taking on a risk of 80% initially, and then 70%, and it has now fallen to 50%. In my opinion, as president of a commercial bank, this program has been extremely valuable, especially during the crisis, when individuals couldn't make that kind of real estate investments from individuals, because there weren't enough collaterals, and the value of properties could have decreased, when people needed a home. Also, those who buy homes need furniture, household appliances, etc., and we need to adapt to what is happening in the market and we need to act in such a manner that the economic activity as well as that of the bank work. If we start off from the idea that we need to eliminate every risk, then we won't achieve anything.
For instance, we have been and we are a bank which heavily funds agriculture, which also means animal husbandry. A few years ago, our exposure to the aviculture sector was rather significant, and when the avian flu came we had to cover some non-performing loans on that segment. Now that the avian flu is done, we are facing the swine flu. What should we do, stop lending? In banking, there are numerous risks, but one needs to have an exposure as diverse as possible, which would take into account the moment in question, and a reasonable evolution. You need to have flexibility.
"The IMF should spend more time in Romania, so it can understand what Romania means from every point of view"
The IMF should understand that the First Home program is a good one and that, at the current time, the non-performance ratio in the First Home program is 0. something %, says Radu Grațian Ghețea, who thinks that there is no reason for concern over this program.
Reporter: If you say that the First Home Program is a very good one, then where do the worries of the IMF come from, which warned, in its latest report, about this government program?
Radu Grațian Ghețea: I want you to remember that what I am about to say, I will be saying on my own behalf - the IMF should spend more time in Romania, so it can understand what Romania means from all points of view. In particular, the specialists of the Fund have short terms/missions, they read various blogs and websites. They should understand that the First Home Program is a good one and that, currently, the non-performance rate for the First Home program is essentially 0....%. When you have such a number with the NPL, there is no cause for concern. You don't raise a warning over something like that.
Reporter: Experts say that the non-performance for this program will come as a result of the rise of the ROBOR index, which, more lately, it is also an event which is being bet on. How do you see the fact that there are bets being placed on ROBOR, given that the bets on an asset can influence its quotation?
Radu Grațian Ghețea: Tell me how much bets anywhere influence anything ... In my opinion, the people who are really interested in feedback are very few in number. I don't think that the ROBOR related bets have added an additional risk, because people who don't own a home need to get one for themselves and they walk into the bank, they ask how much they can borrow, and the bank can ask them how much debt they can take on.
"There have been times where the interest rate on the interbank market was at 1000%"
There have been times where the interest rate on the interbank market has been as high as 1000%, said Mr. Ghețea, by saying that this was happening on March 23rd, 1999. On February 14th, 1997, the Lombard interest rate was at 674%, thus rising over night, from about 50%.
Reporter: Does the ROBOR index constitute a real threat at this time, given its evolution over the last ten months?
Radu Grațian Ghețea: I keep hearing that ROBOR has risen a lot, but how much have the citizens' incomes increased lately, especially in the public sector? I will tell you - by far more than the rise of the ROBOR. Sure, there are people who have taken out mortgages with a ROBOR adjusted interest and who have borrowed to the hilt. Banks have also accepted a spread, and while we're within that spread, nothing is happening yet. Some of them are paid the minimum wage, which 6-7 years ago was 670 lei, and now it is 1900 lei. Under these circumstances, should we start a discussion that scares people? In my opinion there is no need for it. Let's not forget that we have worked for years with interest rates as high as 130-140%. There have been times where the interest rate on the interbank market was as high as 1000%. On March 23rd 1999. Also, the Lombard interest rate, on February 14th, 1997, was 674%. It rose on one night, from approximately 50%. The loans had already been granted at 50-60%, and the interest rates on deposits increased to 500-600%. Then major entrepreneurs in Romania did good business - they deposited money, which multiplied spectacularly. Sure, on the flip side, that's when banks and companies went bankrupt.
Reporter: Aristotle speaks about the price of money as follows: "I need to establish a fixed interest rate, and what fluctuates is the purchasing power. Thus, the principal gets calculated upon repayment in am equipollence ratio - he would say - with the initially credited amount and to that I would apply the 3% interest rate which was established from the beginning. In that way, the interest rate is set and fixed and doesn't cause a loss to the creditor. The risks are being minimized or at least the lending activity is made more transparent". How do you feel about this judgement?
Radu Grațian Ghețea: It is perfect, but given the current globalization it is not valid. The money we are using now - 26.7 billion lei raised by CEC Bank from the customers, individuals and companies - is the money of others, which we need to give back. These depositors don't want to negotiate and deposit one million lei over 30 years. They will deposit it for a year at most, and most of them for a month. Meanwhile, the mortgages are over a period of 30 years. Thus, we grant 30-year loans and we need to come up with a formula to be able to make back our expenses with the price of money over who knows how many years.
Reporter: Speaking about the price of money, the interest rates on deposits still haven't risen ...
Radu Grațian Ghețea: You can currently set up a deposit at over 3%. Soon, we will be making some upwards moves at CEC Bank as well. The upwards moves on deposit interest rates will be made by banks as their needs for liquidity increase. If ROBOR rose, that means that you, as a bank, are making more from the customers, but depositors may sit there reactionless for one-two-three months and then take out their money, and the banks' deposits will shrink. These are logical and real aspects. There are also some banks that immediately change their interest rates, others do that later, but in the end they all raise the interest rate paid on deposits, depending on how much liquidity they need.
Reporter: An increasing number of banks have begun launching loans with a fixed interest rate...
Radu Grațian Ghețea: We have to adapt to the circumstances. There are things that we can't deal with. We have to accept the risks. I am very pleased to see Romanian entrepreneurs who are not that concerned with the ROBOR, because they have worked when we had loans with an interest of 80%, 300% etc.
Reporter: What was the biggest interest rate that you gave a loan at?
Radu Grațian Ghețea: The highest interest rate I've ever had on loans was 175%, at the bank where I was when the Lombard rate was at 674%. Back then we thought about what we could do, what level to set the interest rate at, so that we don't kill off our borrower. Then in 1997, we established the minimum interest rate so that neither the bank nor the customer got ruined. The bank saw a smaller profit for a few months, and then things turned around. How? We didn't cut the customer's interest rate, which was at 175% when the other banks had it at 240%, 380%, when the market returned to normal. This is the "prime rate" technique, which offsets the swings. But then there were various European MPs who asked for the interest rate to be adjusted based on a market index - in Romania's case the ROBOR. And now we don't know what to do, because the market dictates. You see how it's not that easy being a banker?
Reporter: What are the financial results of CEC Bank after the first six months like?
Radu Gratian Ghetea: In the first semester of 2018, CEC Bank continued its policy of improving the profitability ratios, in line with the strategic objective of increasing the efficiency of its activity. Thus, the bank succeeded in obtaining a remarkable result, posting a net profit of 168.6 million lei in the first six months. The result came following the significant increase of the net banking activities, simultaneously with the reduction in operating expenses. The gross profit was significantly higher over last year's similar period, which once again proves the fact that the bank has succeeded in continuing its policy to increase profitability even amid the tightening of the capital requirements imposed by the National Bank of Romania, through the introduction of additional buffers. The net value of the balance sheet in the January- June period 2018 was approximately 30 billion lei, caused by the increase in new deposits attracted from banking and non-banking customers. This fact has also supported the rising evolution of the assets generated out of the lending activity, as there were prospects for the continued increase of the market share in terms of assets, which at the end of 2017, was 7.42%, as well as the preservation of the position of CEC Bank among the top 7 banks in the Romanian banking system.
The main achievements of the bank, in Q1 2018, also had other favourable effects. Thus, the volume of loans increased by about 1 billion lei over the end of 2017. The return on equity (ROE) has increased considerably, going to 12.15%, compared to 7.99% at the end of 2017. The Return on Assets (ROA) are seeing a rise of 0.97%, compared to 0.58% at the end of 2017. The cost/revenue ratio is 52.05%, which indicates a comfortable level of efficiency. As far as the rate of non-performing loans, at the end of Q1 2018, it saw a significant decrease compared to the end of 2017, reaching 7.25%.
"At CEC Bank we are trying maintain deponents and not to kill off our debtors"
When you have 1000 branches, you also have 1000 problems, says the president of CEC Bank, who says that the bank he leads is trying to keep its depositors and not to kill off its debtors.
Reporter: What actions are the banks trying to take to prevent non-performance?
Radu Grațian Ghețea: Establishing the price of money, both the raised and invested amounts, is a crucial problem. Even in the market, the vegetables seller will set a price for his goods. That's what we do, for the price of the products we are selling. If we have nothing to sell for the moment, then, when we get more, the price will rise.
Some take wise actions, others take less wise ones, but at CEC Bank we try to keep our depositors with us and not to kill off debtors. It is this balance that needs to be taken into account daily, because there are all kinds of situations like this.
For instance, one day, the treasurer comes in and says: "We had a big deposit from one customer - about 600 million lei - and he withdrew 400 million which he spent on a wild boar farm". So we're left without 400 million and meanwhile, another customer came in, to whom we gave a loan to buy a mall, who precisely now wants to pick up the money that they didn't use right away. We get this kind of situations daily. We have 1020 branches, of which 481 in rural areas, and every morning I get a report with all kinds of situations in Romania. When you have 1000 branches you also have 1000 problems. But we are not complaining. We are a well knit team and everyone knows exactly what their responsibilities are.
Reporter: Thank you!
Recorded by EMILIA OLESCU