Leumi: Firms file for insolvency, ignoring risks

Most entrepreneurs of small and medium-sized enterprises (SMEs) voluntarily file for insolvency, and later come up with formal restructuring plans, says Laurentiu Mitrache, chief executive of Bank Leumi, the Romanian subsidiary of one of the largest Israeli financial groups. "With SMEs all restructuring plans are formal, and they go through all the instances - administrator, syndic judge with an almost blameable ease. 80% of clients file for insolvency themselves, ignoring the fact that if you are going through such proceedings, you cannot resume operations when the market recovers and you are left with a tarnished track record," Mitrache says. As far as Bank Leumi, a small player on the Romanian market, is concerned, around 3% of SMEs in its portfolio are facing financial problems. The head of Bank Leumi says the current regulatory framework offers excessive protection to debtors, while banks face red tape hurdles when they try to foreclose upon the collateral of the loans. "The regulatory framework is unbalanced. We are currently heading towards a blockage in the creditor-debtor relationship, which is not generated by the creditors' attitude. An image is created that banks do not unfreeze lending, but actually this is not happening because we don't have an adequate legal framework," believes Mitrache.