"Banks have to learn to communicate, because their customers are the hen that lays the golden egg"

EMILIA OLESCU (translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 14 august 2015

"Banks have to learn to communicate, because their customers are the hen that lays the golden egg"

(Interview with Nicolae Cinteză, the head of the Oversight Division of the NBR)

"The bail-in isn't the solution to save the banks"

"I think that the banking system will be profitable after the first semester"

"I am starting to get concerned over the high solvency of banks, that means that they are lacking profitability"

"I am getting many phone calls from abroad concerning the risk perception when it comes to the legislative processes"

The solution to save distressed banks isn't the bail-in, (the measure of recapitalizing distressed banks, which also involves the confiscation of unguaranteed deposits), says Nicolae Cinteză, the head of the Oversight Division of the NBR, who thinks that what is necessary would rather be for the banking system to act "proactively".

He has reiterated, in an interview, that the solvency of Romanian banks is extremely high, (as the average is 17%): "I am starting to get concerned over the high solvency of banks, that means that they are lacking profitability".

Nicolae Cinteză thinks that, Romanian banks will post a profit, after several consecutive years of losses, at the end of the first semester of 2015.

Among other things, the head of the oversight division of the NBR has warned about the manner in which legislation is drafted in Romania, and he mentioned that he gets "many phone calls from abroad concerning the risk perception when it comes to legislative processes".

Reporter: How did the activity of Romanian banks with Greek shareholders go lately, in the context of the Greek crisis?

Nicolae Cinteză: The four subsidiaries of the Greek banks have been put in a situation where they had to work with each other, because the other banks in the market did not want to cooperate with them. We have been forced to manage liquidity between the banks with Greek shareholders. They needed lei and the other banks were refusing to convert their foreign currency. The Greek subsidiaries had the currency, where the other banks wanted guarantees. What did they need guarantees for?

Together with the four banks with Greek capital - some had excess liquidity, others were somewhat within normal parameters - we have directed the excess liquidity between them and everything worked perfectly. We have been congratulated by the EBA for the way we have handled this crisis.

Reporter:Last week, shares of Greek banks fell three days in a row. How could that evolution be reflected on the Romanian market?

Nicolae Cinteză: The fact that shares are dropping is the problem of Greek banks, whose valuation is dropping. To us, it doesn't have any importance.

Reporter:As a result of the capital controls, Greeks are not allowed to withdraw more than 420 Euros a week. To what extent can they repay their loan installments?

Nicolae Cinteză: Capital controls concern only cash, internal transfers within Greece are allowed.

Reporter:In Romania, depositors have withdrawn 600 million Euros from Greek owned banks, and most of those who did that are legal entities. Was that money taken out of the country or has it been transferred to other banks in Romania?

Nicolae Cinteză: It has been transferred to other Romanian banks, it did not leave our banking system.

Reporter:Do you think that people will start withdrawing their money from the deposits they have opened with other banks than those with Greek shareholders for fear of the bail-in?

Nicolae Cinteză: The bail-in only happens when the bank is in a bad situation and needs to enter the resolution procedure, and we have no bank in that situation.

Reporter:But the fear over that can still exist ...

Nicolae Cinteză: And if that depositor goes from one bank and takes their money to another, what have they accomplished? The likelihood of everything happening with the same bank is the same.

The problem is that companies' deposits aren't guaranteed anywhere in the world. With the exception of SMEs, no company has its deposits guaranteed.

Why do you think two years ago I said that if a resolution measure were applied, we would need to deal with the problem of every bank depositor? Because we are saving the individual depositors, but we've still got the companies, which go into default as well because the bank has gone into resolution, and this creates social issues, people lose their jobs, they are unable to repay their loan installments etc. That is why, the solution to save the banks isn't the bail-in. The solution is to avoid getting there. Acting proactively.

Reporter:Concretely, what does "acting proactively mean"?

Nicolae Cinteză: Take steps like the ones that we have taken to maintain the ratios that reflect the bank's stability at a comfortable level. That is why we currently have such a stable system. In Romania, it hasn't been necessary to use public money to save banks. I am already starting to get concerned over the high solvency of banks, that means that they are lacking profitability.

Reporter:What good is the bank having a good solvency ratio, if it can't withstand a moment of panic?

Nicolae Cinteză: Solvency means the quality of the assets, especially that of the loans, it means the bank's ability to honor its obligations on time. In other words, the bank has very good quality loans, except they are cashed in on maturity.

In Romania, customers can withdraw their money any time, they have no restrictions, and banks do not keep their money in treasury deposits, they lend it out. When there is a panic, people come in to get their money. Where from? It is in cases like those that liquidity crises appear, and if it spreads it turns into a problem of solvency, because debtors stop paying their loan installments.

In our capacity, we (ed. note: the BNR), are willing at any time to support the Romanian banks if necessary, because they are solvent.

Reporter:Have there been any announcements of moves such as mergers or acquisitions which would result in some banks becoming stronger?

Nicolae Cinteză: There will be some mergers in the market. At the very least, the decisions will be made this year. The mergers are set to take place between our banks, as Greek subsidiaries are concerned as well. That is currently being considered. If it materializes or not, we will see.

There is no need for the banks to get stronger, because I repeat, they have an extraordinarily high solvency, as the average is 17%. The problem is not the solvency, the problem is of liquidity in times of panic.

Reporter:What is the current status of the acquisition of Banca Carpatica?

Nicolae Cinteză: Carpatica has signed an exclusive agreement with the J.C. Flowers fund. There is a period of waiting until the legally required deadlines are elapsed and then the deal will be concluded. It is a very good investment, because we are talking about one of the most powerful investment funds in the US.

Reporter:What is your opinion on the draft law which is being worked on at the Ministry of Public Finances, which stipulates the conversion at a discount of CHF loans, with a guarantee from the state?

Nicolae Cinteză: I don't know who will bear that discount. Besides, conversions with a discount are currently done quite often. Piraeus Bank has been performing that kind of conversions since 2009, and Bancpost has made that kind of offers. So did other banks, but in other cases the discounts have been approved by the shareholders.

Reporter:Consumers have requested the extension of this law to cover outsourced loans as well. Is that possible?

Nicolae Cinteză: When a bank sells the contract, that is an assignment of a receivable, it sells its future right over that contract. A regulation can not be applied to outsourced loans. Consumers can ask for anything, but what good is a law that gets criticized everywhere outside the country? It is dangerous, we are being viewed with fear all by foreigners. And it is a shame, because there is interest from foreign investors in Romanian banks - they are interested in buying, in investing in Romania, in financing, in offering money, but they hear about the way the laws are being made here, they stop being interested.

Reporter:The ANPC recently won, the first instance of the first class action lawsuit filed against a bank, namely OTP Bank. Considering the fact that the IMF was warning against the risk of such kinds of lawsuits being won in court, do you think that the victory of the ANPC could represent a systemic risk, considering that the ANPC has 33 such ongoing lawsuits, filed against 11 banks?

Nicolae Cinteză: In the ANPC versus OTP Bank, we are talking about a clause that allowed the bank to unilaterally change the interest rate. It was an abusive clause, except it won't have any effects, because it has never been enforced by the bank.

In that regard, there is a lot of unhappiness in the banking system. These lawsuits are being filed based on Law no. 193, which is supposed to be a transposition of Directive 93. After having been postponed twice or so, it came into effect in October 2013. The way it has been amended was extremely strange - two articles of the law were inserted in a legislative bundle which amended 6-7 laws. If we go by the EU accession treaty, such a law was supposed to get the approval of the European Central Bank.

Anybody in the Romanian banking system, can currently notify the ECB, and that will happen. Already, a lender has for a verification of the constitutionality of this law, because it affects the banks' assets.

We did not approve that law. During the period of that postponement, we have notified the Ministry of Public Finance, the government, the Ministry of Justice that they are affecting the stability of the banking system. First of all, the European Directive applies to loan agreements concluded one year and a half after its appearance, while Law no. 193 applies to ongoing contracts as well, which is not fair. This is the same irregularity as Ordinance 50, which has applied to ongoing contracts for six months. Mr. Cerbulescu (ed. note: Constantin Cerbulescu, the former chairman of the ANPC) offered the banks solutions, and six months later he issued an ordinance which corrects the old Ordinance no. 50 and aligns it with Directive 48. It's just that, now, after the amendment of the Law no. 93, the current management of the ANPC says that it does not acknowledge the solution which the ANPC gave back then. Why? Because it is an address signed by the ANPC, based on which the banks have aligned their contracts, and the ANPC is now suing them based on class action lawsuits, complaining the changes made by the banks based on the letter of the ANPC.

I am getting many phone calls from abroad concerning the risk perception when it comes to the legislative processes. When I go on the board meetings of the EBA, I get asked about the regulations in Romania. The parent banks are heavily concerned about the way we are making the legislation. On the supervisory boards we are going to the issue of these initiatives in Romania gets discussed. It is unacceptable for an institution that represents the Romanian government to come and tell us two years later that it does not acknowledge its own letter!

Reporter:What can you tell us about the evolution of non-performing loans (NPL)?

Nicolae Cinteză: The evolution of NPLs is good, their numbers are dropping. The loan to provision ratio remains at 70%, which is extraordinarily good. I think that at the end of the first semester, the banking system will post a profit.

Reporter:Lately, the issue of "ID card loans has been raised", as a result of the new products that have appeared on the financial market, such as "the loan that's one ID document away". In a different interview, you told us that the situation is different, because the banks now have access to the records of the National Tax Administration Agency, with the borrower's approval. What are the benefits?

Nicolae Cinteză: There is a big difference between the "loan with the ID card only" that we used to have a few years ago and the current product. Now, the banks have access to the fiscal information of the loan applicant. This also eliminates the possibility of applicants producing false income statements or salary statements. Banks have the ability to review the continuity of the borrower's income, as the product gets granted predominantly to those that get paid their wages through an account opened with the bank that they are applying with. Thus, from reviewing the debtor's account statement, the bank can get information concerning their ability to repay the loan.

Reporter:People have not yet regained their trust in the banking system. What message do you have to send banks, concerning the relationship they have with banks?

Nicolae Cinteză: I said three years ago that customers' are a banks' most important asset. Banks need to learn to communicate with their customers, because it is the customers that are the hen that lays the golden egg.

Reporter:Thank you!

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