The banks operating in Romania have become net capital importers in order to feed lending expansion.
Whereas the deposits of the Romanian banks abroad used to be substantially higher than the amounts raised through lines of credit or any other means until December 2002, the trend dramatically reversed early in 2003.
Thus, the banks were totalling 2.6bn euro liabilities to their foreign lenders at the end of July, while their deposits abroad were worth a mere 800 million euros.
The balance has constantly deteriorated, especially since February this year when the foreign currency lending became the only the drive that helped the lending growth maintain.
At the end of 2000, the Romanian banking system's assets abroad were three times higher than the funding attracted, 1.7bn euros compared with 550 million euros. Lending was infinitesimal at that time, though, and there were almost no loans granted to individuals. Once the loan granting started, the banks quickly turned to foreign credits, with the branches and subsidiaries of some foreign groups leading the way.
In an economy that is importing more and more goods and services by the month, the banks in their turn have come to import capital, which partly goes to expenses for the acquisition of goods from abroad.
Resorting to external funding is but the solution imposed by the non-existence of long-term funding sources in domestic currency on the local market.
As long as the only bond issues attempted by BRD and Raiffeisen Bank do not cross the three-year maturity threshold, and savings are still largely relying on short-maturity deposits, the only real stream of capital is made up of the foreign lines of credit. Either from the parent-banks, for whoever has a parent-bank to turn to, or from international financial institutions, such as the EBRD and IFC.
And since these lines of credit come relatively cheap, many banks have come to recommend their clients to borrow in foreign currency, while others, even though talking about the exchange rate risk do not have many arguments against the significantly lower costs than in the case of borrowing in domestic currency.
This is why the market is practically captive foreign currency lending-wise, unless the interests for funding in ROL accumulate a significant decline. Figures point, without a doubt, to the preference for foreign currency, on the part of both lenders and borrowers. If calculated in euros, the foreign currency credit growth stood at 51.3% from July 2003 through July 2004, pushing this type of lending to a level of nearly 60%, unprecedented in the last fifteen months.
Late July statistical data show the Romanian banking system is getting funding from outside at an increasingly faster rate.
The central bank believes this trend to be negative, although it had seen it coming. The slowdown of this trend is just a matter of time at the moment. Despite administrative measures such as the increase in the mandatory minimal reserves set up as a percentage of the deposits in foreign currency attracted, the crediting in euros or dollars is hard to discourage unless interests on ROL loans go down. Which are perked up so high, that it would probably take until next summer to see the costs of the two funding types become comparable.
razvan.voican@zf.ro
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