The taxation level, competition and the lack of demand are the main diﬃculties identiﬁed by companies in Romania as regards doing business while access to ﬁnancing does not represent a major challenge for these companies. About 73% of the applications of the companies that applied for loans from credit institutions were solved favourably for these companies. The general picture should be completed with a worrying element: if four years ago one company out of 30 was insolvent, while currently 1 of 7 ﬁrms become insolvent.
The survey on the access to ﬁnancing of non-ﬁnancial companies from Romania and their capacity to face unfavourable ﬁnancial conditions conducted by the National Bank of Romania based on questionnaires sent to 10,000 companies showed that 3 out of 4 companies have accessed successfully bank ﬁnancing during October 2013 – March 2014 and that companies say that they cannot appropriately face unfavourable ﬁnancial developments as regards exchange rates or interest rates. The loans granted to SMEs amounted to 84.5 billion lei at the end of 2013, which represents 76% of total corporate lending. The weight of ﬁnancing to SMEs stood at about 40% of total non-government credit while the number of SMEs that had loans stood at 77,500 in August 2013.
The barriers mentioned by companies when accessing loans pertain to the too high level of interest and fees, the requirements as regards the value or type of guarantees, the contractual clauses and bureaucracy. The risk cost analysis should be supplemented with statistics on the non-performance of companies, considering that one third of the money granted to SMEs via lending is non-performing. The non-performance rate underlying the loans granted to SMEs stood at 82% (August 2013) for the loans secured by mortgages, while for corporations, the NPL rate for the loans secured with the same collateral type stood at 9.62%. Payment discipline in the economy keeps being a problem with a major impact upon the capacity to honour the debt service by the companies who are borrowers.
The prudence shown by banks when lending to legal persons is generated by the lax discipline of paying back debts and by companies resorting abusively to the insolvency procedure, next to more ﬁnancing constraints when it comes to SMEs.
The total of the money owed by debtors in insolvency procedures, bankrupt or under reorganization stood at 17 billion lei according to the data mentioned in the reporting on “Loans granted and commitments taken by credit institutions” of the Central Credit Register (CCR) of May 2014. The data refers to exposure toward one debtor, an exposure equal or higher than 20,000 lei and represents 89.6% from the value of granted loans and commitments taken by the banking sector, according to the NBR. The amounts owed by the insolvent debtors dropped slightly, but unfortunately, the diﬀerence goes to the monies owed by bankrupt debtors.
The overdue payments of insolvent debtors or bankrupt or under reorganization debtors amount to about 15 billion lei.
The statistics for August 2013 showed that 86% of the insolvent companies ended up by becoming bankrupt, while merely 1.2% ended up under reorganization.
The enhanced need for provisions aﬀects proﬁtability and lending. The Law on the procedures to prevent insolvency and the insolvency procedures was published in the Romanian Oﬃcial Gazette after more than two years of debate. During the debates that took place as regards the Insolvency Code draft, the Romanian Association of Banks submitted proposals targeting mainly strengthening ﬁnancial discipline, increasing the workout rate of the receivables under insolvency and generating more predictability of the business environment. Law enforcement continues to be a problem. The pressure exercised by the insolvency law trials is ample and acts via diverse decisions, including court sentences and the excesses of insolvent entities, liquidators or other third parties involved. The RBA continues its actions to set up a data base on insolvency with the administrators/shareholders who act in bad faith. Too many companies becoming insolvent left their liabilities to creditors and moved their assets to new ﬁrms. The state, insolvent companies’ business partners and banks all lose in this situation. Including those who have not applied for loans yet who will lose if they want to apply for a loan as they will pay more in interest since a higher risk cost is to be assimilated based on the experience of insolvency.
This is the impact across Romania’s economy, with a GDP of €140 billion: €25 billion is blocked in insolvency proceedings. The cause was not contemplated and is not treated for any of the three major creditors: the state, commercial partners in insolvency and credit institutions. Treating the cause, as banks request, would mean enhancing ﬁnancial discipline.
On short term, we will remark an ampler contraction of the non-government credit balance. Actually, the non-government credit balance registers month after month new loans granted by credit institutions in black and in red reimbursements of the principal made by the almost 80% of the debtors who pay their instalments as well as the sales of loan portfolios that banks have resorted to lately. We expect that the pace of loan portfolio sales and the balance sheet write oﬀs lead to a steeper drop than in the past of the general loan portfolio. Writing oﬀ from balance sheets the NPLs fully provisioned, with the possibility to work out the receivables in the future will be shown in banks’ balance sheets more signiﬁcantly once the statistics for 30 June 2014 are published.
Enhancing commercial and ﬁnancial discipline in the economy is a must and here we need to target both improving the legal and ﬁscal frameworks and law enforcement.
Moreover, the banking community from Romania requests that the European directives be transposed into the domestic legislation in conformity with the provisions approved by European regulators. Expanding very much the scope of European legislationinduces an ample gap as regards banking practices compared to the other European states where the authorities transposed merely the provisions of the directives and regulations approved by the European legislative, including the costs borne by the banking sector. Costs are not only material ones, but rather they aﬀect the banking sector’s brand image and investors’ intentions. Transparency and predictability are the characteristics necessary to deploy economic activity.