Romania has undergone a period of economic boom, following the similar European trend. Such a pace should be supported by full synergy with the actions of the stakeholders belonging to different industries, in our case the banking industry. Furthermore, tactics should be mainly proactive, and not reactive or populist.
In such a context, the Romanian Association of Banks (RAB), in its almost three decades of existence, has been committed to playing an active role in promoting GDP growth and individual economic welfare, via sustainable lending, enhancing financial literacy and the digitalization of the economy, irrespective of the disturbances which occurred along time.
The progress since our joining the European Union in 2007 has been impressive. In the 12 years which have elapsed under the EU umbrella, the nominal GDP advanced by 160% to about €200 billion, GDP/capita (PPS) reached 64% of the EU average in Romania in 2018, compared to 44% in 2007, while the Romanian banking sector’s assets went up by 80%. The doubling of the Romanian banking sector’s assets took place in a context in which the European banking industry had a bumpy ride, particularly during the crisis.
But Romania has a long road to travel still and, to this end, we should have a speed which would bring us a convergence advantage, i.e. our travel speed should be faster than the speed of the group we have been following.
Here, we need to highlight the opportunities we have; the paradox is that, in general, the opportunities come from areas where, today, we have problems. I could mention in this respect but three fields: financial inclusion (only 60% in Romania compared to over 90% in Europe), the digital agenda (we rank penultimate in Europe based on DESI) and financial literacy, where we rank last in Europe 28 and where, with a little eff ort, we could have special traction for the sustainable growth of financial intermediation.
Therefore, the banking sector of Romania should be able to solve the problems generated by the low level of financial intermediation.
Capital allocation – contemplating low risk – between those who save and those who need capital in order to develop, penetrate new markets or enhance their living and education standards via consumption or personal investments, is a general desideratum across our industry. We would like to enhance the level of financial intermediation from 26.6% toward the average level in the European Union standing at 83%. In this respect, across the sector, our ratios show soundness and capability.
The capitalization is double against the requested threshold, standing at almost 20% while the quick ratio is high, i.e. 37%. There is availability from banks as regards financing granting.
Unfortunately, the financial intermediation’s growth potential is put to danger by the unpredictable legal framework when it comes to financial law, by the high level of indebtedness contemplating the low level of revenues, by massive emigration, by the low level of financial literacy and by the poor development of domestic entrepreneurship. In Romania, 40% of companies report negative capital.
As you know, the consolidation of the position of dialogue-and-consulting partner before the authorities has been a real challenge for us. Last year for instance, there were successive challenges for the banking sector generated by the introduction of a new tax on banks’ assets and the promotion of laws which, at the end of the day, proved to be unconstitutional. When there is need to remind the socio-economic environment the mission of an industry in society, it means that the respective industry has a reactive approach. And a reactive approach is of no use when we want to implement growth measures.
This year, we have all been witnessing a historical moment for us, the Romanian Association of Banks, and for our country as well. Romania was the core of Europe as it held, in the first part of the year, the rotating Presidency of the Council of the European Union. Romania was the financial core of Europe, even if for only two days, as representatives of the entire European banking market were invited to Bucharest. This happened due to the fact that the Board meetings and the Executive Committee meetings of the European Banking Federation all took place in Bucharest.
Moreover, the priorities of the banking industry of Romania overlap, partly, with the European ones of which I mention lending, digitalization, education, banking culture and conduct.
The implementation of common standards across the EU could play an essential role in harmonising regulations and in mitigating the negative effects brought about by market fragmentation. The significant regulatory differences among states generate adverse consequences as regards investors’ capability to support the enhancing of sustainable lending. One of the crisis lessons was that the problem of one bank is, actually, the problem of the entire banking sector. Paraphrasing this, we could say that the problem of the financial sector of an emerging country is the problem of the whole European financial sector.
At national level, we strive to understand the European problems of the sector while taking steps to develop and consolidate our own market, with our own problems related to size, its low complexity and access to capital markets. The Romanian banking sector is an efficient banking, proven by the high levels of the financial performance and capital adequacy ratios. But, if we are to examine the level of financial intermediation comparing it with the European one, we see that we have a very low level, which could also mean that we still have a significant growth potential.
Across society, there are ideas and priorities, of which some are convergent for most of society, while others are not. Nonetheless, financial literacy is a convergent priority for us all, among others since it could generate more trust in the banking industry. We must turn financial literacy into a priority of the European authorities as we cannot talk about a single market without a certain level of education needed to understand this market in a similar manner. The absence of the population’s financial literacy represents, at its turn, a barrier for the enhancing of lending and a barrier for economic development as well.
A solution for a better financial integration is, among others, the monitoring and the fostering of a European programme having as aim to enhance the level of financial literacy. As such, the cornerstone of this harmonisation should be the introduction of financial education classes in the school curricula as a mandatory discipline for all the citizens of the European Union.
A level playing field for financial literacy is a sine-quanon requirement to create the conditions of competitive equality needed for financial integration at European level.
Implementing these equitable conditions represents the cornerstone for the future European construction as well as for the sustainability of the European project.
Allow me to conclude by mentioning that we have been close to all our dialogue partners, to the banks’ top management, to our affiliate members, to the specialised Commissions and to the RAB executive staff, to whom we would like to convey our thanks for their openness and for their contribution to Romania’s economic development and to the enhancing of economic welfare in our country.
President of the Board of Directors
Romanian Association of Banks