The Romanian banking sector has passed through positive developments – both as regards figures as well as the population’s consumer confidence index, despite the fact that, in recent years, the European context has not been too favourable for banks. The Romanian Association of Banks (RAB), an institution with a tradition of 27 years of existence, has totally committed to the effort of supporting the preservation of a stable economic climate and conditions for economic growth, being the main partner of the authorities when it comes to government priorities and to the current and foreseeable challenges of the Romanian banking industry. Moreover, we have committed to having an active role via an open and constructive dialogue with all institutional decision-makers and with the business environment, precisely in order to enhance the positive impact of the banking industry upon the economic and social climate.
Nevertheless, the position as the authorities’ partner for dialogue and consulting comes with some challenges as well. This year, we have witnessed successive attempts to determine the banking industry to get out of its pro-active stance and become defensive, being in the position to remind the socio-economic environment the mission of our industry inside society. The RAB role is to present, in an honest and non-biased manner, to political decision-makers and not only to them, the banking industry’s position and submit arguments related to a number of legal initiatives of interest for the financial & banking industry, next to their potential impact, fundamented via surveys drawn up by prestigious consultants. As a matter of fact, such surveys are absolutely essential in order to bring valid arguments for legal initiatives. During the debates, the public at large has heard the voice of the banking community for the very purpose to avoid the spreading of some unwanted effects such as a slowing down of economic growth, a drop in consumption and investments, or lower revenues for the state budget, besides other effects that would affect consumers directly and promptly.
After having travelled at the highest speed in the European Union – and here I have in mind the cut in NPLs – we could witness, due to the enforcement of these legal initiatives, a backlash, i.e. higher non-performance across the industry. The Romanian banking sector has applied strong measures to cut the NPL portfolios standing currently at a quarter compared to the figure we had four years ago, more precisely 5.71% in June 2018. The promotion of these initiatives which, in the second round, generate a number of unwanted effects, are at odds with the actions implemented across the European Union in order to resolve the high levels of NPLs and to clean banks’ balance sheets, taking into account the fact that they are considered as being risk to financial stability and to economic growth.
We are all aware that the major differences as regards the regulatory standards adopted by Member States contribute to the fragmenting of the single market, a situation which affects the free circulation of capitals and services inside the European Union. This brings about weak competition and the slowing down of the development of a functional secondary market for bank loans. Generally speaking, the absence of legal predictability could have negative consequences upon the business environment and upon investments. The banking sector has proven its resilience before external and internal factors returning to being profitable and attractive for investors, so that, today, we benefit from advanced structural stability, being at the same time one of the best capitalized European banking sectors. The solvency ratio across Romania stood at 20.07% in June 2018.
The banking industry of Romania has gone through the global financial crisis without the Romanian state being forced to contribute to the potential bailing out of some banks, as things happened in other 23 countries members of the European Union. In the last 10 years, the shareholders’ contribution to the equity capital of bank branches operating in Romania stood at about €4 billion across the banking sector. By a pro-active approach all across the banking sector, we focus on three pillars: financial inclusion (merely 58% in Romania compared to over 90% at European level), the digital agenda (ranking last in Europe based on DESI, but ranking number two as regards high speed connectivity) and financial literacy, where Romania ranks last in EU28 and where the banking sector could gain special traction when it comes to the sustainable growth of financial intermediation.
There is need to boost lending, contemplating the fact that Romania has a number of gaps compared to EU Member States, a situation which fragments the integration efforts and leads to a number of adverse effects such as the shrinking of net wealth, more social disparities and more migration. We are concerned about the process of financial disintermediation and about migration, with direct and major consequences upon the developments in Romania’s economy. The level of financial intermediation, computed as weight of non-government credit against the GDP, places our country on the last position in the EU, i.e. 26.4%; the weight of bank assets against the GDP stands at 50%, while in the EU it stands at 255% and in the euro area at 288%. The migration phenomenon reached a worrying level of 15% of the country’s population, respectively 25% of the active population.
In Romania, bank lending – and especially corporate lending, has high growth potential, with beneficial effects for the economy on the overall; but, common efforts of the banking industry are needed here, efforts supported by decision-makers. Then, there is need to identify the fine tuning that would allow the enhancing of companies’ capacity as regards access to and usage of banking services and therefore the expansion of their activity. The reaching of the common goal of enhancing economic welfare can happen by boosting lending on sustainable basis. We cannot have welfare if we do not have economic growth and, on long term, we cannot have economic growth if we do not try to resynchronize the economic growth cycle with the financial cycle, in order to enhance financial intermediation. In what follows, allow me to highlight some fields where the RAB actions generate high added value in the relationship with bank customers – concretely, I have in mind the financial education programmes and a new approach as regards the behaviour of the banking industry transposed into a Code of Conduct.
We have had notable progress when it comes to financial literacy in the last year, when RAB together with the financial sector’s stakeholders delivered to the public at large the “Practical Handbook for the Users of Financial Services”, the first instrument of financial education containing a summary of concepts used on the banking, capital, insurance, pensions and leasing markets. We are honoured as an association of the banking industry to be among the five institutions – of which four represent public authorities – which will draw up Romania’s National Strategy for Financial Education.
This partnership is indeed a must as long as surveys show that only 1 of 5 adults understand basic financial products, a situation which places Romania on the last position in Europe in this respect, with a financial literacy rate of 22%. At its turn, the fact that the population has poor financial literacy represents a barrier for the expansion of lending and for economic development. Although on an upward trend, Romania has one of the lowest welfare levels in the European Union, and the solution is to address the causes which place our country in this position. Expressed as the standard purchasing parity, GDP/capita reached 63% in 2017 compared to 49% in 2008. The regulating of banking in conformity with prudent and sound banking practice standards developed across the banking industry represents for RAB another major goal. In this regard, the new Code of Conduct adopted this year by the banking community focuses on observing the principles of ethics in banking in relation to all the stakeholders of the banking sector and on consumer protection, including on a better collaboration with debtors, i.e. consumers who have to face financial difficulties. The banking industry’s Code of Conduct – which reviews the Code of Banking Ethics approved in the year 2009 – targets to focus more on customers’ interests in their relationship with banks, next to enhancing the general public’s trust in the financial & banking sector, by making uniform the integrity and ethics standards applicable between banks and stakeholders.
In a complete, 360-degrees approach we regulate the inter-bank relationship, next to the relationship between banks and customers, between credit institutions and the authorities, between banks and their employees and among the banking sector’s employees. Along these lines, we have set up a single, transparent and predictable framework for the deployment of the internal and external networking of the banking sector.
Concerning the regaining of trust, here we are on a positive trend; it is important that the voice of the industry’s detractors be isolated from the voice of the professionals who come with arguments when presenting the situation, so that the perception built on expectations wrongly managed does not replace objective realities. We must be careful with what is termed as the increasing ‘trend of trust asymmetry’ – namely trust is regained faster with those who are more informed and who understand correctly what financial & banking services actually are. This year as well, banks have learnt from the lessons of some legal initiatives; but all these lessons mean costs, including image costs. We need more accountability and, maybe, we, the bankers, should be more present with our position in the decision-making circle, with a view to contribute to perception building based on correct informing.
Thinking ahead, the taking over by Romania, for the first time, of the Presidency of the European Union Council starting with 1 January 2019 is, undoubtedly, an event with manifold relevance. After more than 10 years since we joined the European community, Romania will have a mandate limited in time but unlimited as regards the opportunities that we have, potentially at least, when presiding the Council of the European Union. Romania will be at the heart of the decision-making process at European Union level and will have a major say when establishing the agenda, the position and the development priorities of the European community, with direct impact upon 500 million European citizens, including upon 20 million Romanians. The Presidency is, first and foremost, an exercise of accountability for Romania – a challenge but, at the same time, an opportunity to demonstrate moderation in discourse and in vision.
Allow me to convey my thanks to all our partners, to banks’ management, to the members of the RAB’s specialised commissions and to the RAB executive staff, for their openness and for their contribution to the development of Romania’s economy and the enhancement of economic welfare.
President of the Board of Directors
Romanian Association of Banks