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Romanian CBG seeks better growth balance

Mugur Isarescu, governor of the National Bank of Romania, talks to Nick Kochan about boosting exports and bringing down levels of non-performing loans.
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Mugur Isarescu

Q: Romania is experiencing economic growth but some have asked how sustainable this is. What do you think?

A: Growth is at a very high level but it is unbalanced and too much is dependent on consumption. It is the opinion of both the National Bank of Romania and the European Commission that economic policy should be less pro-cyclical. With economic growth of almost 7%, it is clear we should have a [much] lower budget deficit. This now stands at 3%. We can only achieve our mid-term objective of 1% if we can revive investment in production.

Our policy is to encourage banks to channel credit towards the productive sector, towards exporters, because we have a deteriorating trade balance. Last year exports increased by 9% but imports grew by 11%.

I come back to the fact that we are importing consumer goods rather than machine tools and this is causing a deteriorating account trade balance.

Q: Could you assess the role of the banking system in the economic crisis?

A: Foreign banks have behaved in an exemplary manner. When asked to increase the capital of their Romanian subsidiaries at the height of the financial crisis, they did not hesitate. As a result, the Romanian state did not have to spend so much as a penny bailing out local banks. Today our banks have solid solvency and liquidity ratios and we have cleaned up their balance sheets.

Q: Are you concerned that Greek banks have sold their interests in Romania?

A: I have tried to explain many times that these are fully fledged Romanian banks with Greek capital. We have no Greek banks in Romania. I also want to say that Greek [parent] banks behaved in an exemplary manner when they were asked to increase the capital of their Romanian operations.

Q: Romanian banks have sharply reduced their levels of non-performing loans [NPLs]. How has this been achieved?

A: This has been a tough process, with all the banks working hard in line with National Bank objectives. We have decreased NPLs from more than 20% to less than 8% and this is a considerable achievement. We would like to reduce the level of NPLs to less than 6%. But this is not a target that we are going to force [the banks] to attain. We expect to reach [this average] next year.

Q: What is the impact of the country’s improving loan-to-deposit ratios?

A: Loan-to-deposit ratios have improved dramatically. We are now on the brink of becoming a country that is exporting capital savings. This is a very encouraging outlook.

Q: Do you believe there is scope for consolidation in the banking system?

A: Nobody can say what number of banks is best for Romania. As a supervisory agency, the central bank of Romania must look at the indicators and take action if there is a deterioration of capitalisation or a need to move away from risky operations.

But it is not our duty to push banks to merge, or to arrange this kind of marriage. These are commercial operations and we are committed to the principles of the free market. That said, we have the legal framework for merging and for acquisitions but it is not our job to interfere.

Q: Romania’s absorption rate for EU funds is less than one-third of that achieved by Poland, Hungary and the Czech Republic. What has gone wrong?

A: We understand well that we have a serious problem. Our absorption rate is falling and this is very worrying as Romania has a massive need for infrastructure development. We need to build highways in the west of the country for example. I blame our bureaucracy and our legislation.

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Read more about:  Central & Eastern Europe , Romania