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ANALYSIS – Small banks resort to extended offer, niches to face new central bank lending rules

Romania's small banks wait for the central lender to validate their own lending norms and try to curb the effects of these rules by diversifying products and focusing on new niches, like agriculture, people from banks said. Libra Bank and C.R. Firenze Romania are presently pending for the central bank (BNR) to relax the crediting rules, which would up the degree of indebtedness to 70 percent at most.

Intesa Sanpaolo Bank received approval for its own crediting norms in November 2007, but continues to apply the old rules. "The norms were not implemented in the bank's lending system precisely to avoid the risks generated by the depreciation of the leu, like it happened at the end of last year, and following the decrease of the real estate market," explained Cristian Nae, retail manager at Intesa Sanpaolo Bank.C.R. Firenze, Libra Bank and Intesa SanPaolo Bank have so far granted loans with a maximum degree of indebtedness of 30 percent of revenues for consumer credits and 35 percent for mortgage loans, although the old lending rules allowed banks to work with a 40 percent threshold.

The new BNR rules stipulate a maximum degree of indebtedness of 35 percent of revenues for all types of loans at banks without own norms.C.R. Firenze will apply the new norms by raising the indebtedness level to 35 percent for all credits granted.

New rules could cut lending 15 - 20 percent - Intesa SanPaolo

The new BNR lending rules announced in August oblige banks to ask clients for individual tax records in order to calculate the credit worthiness and to establish a differentiated maximum degree of indebtedness.Nae estimated that the new norms will reduce the credit volume granted by banks with 15 - 20 percent, but negative effects will only be seen on the short-term. On the medium and long-term, the central bank measures will diversify and improve the quality of products and services.

Representatives of Libra Bank stress that the portfolio diversification will offset a potential slowdown of credits.Other bankers say that the central bank norms will not affect their sales, since they are in accordance with the rules practiced so far.

Lending, under the effect of the global credit crunch

A drop in lending in Romania will be caused mostly by the international crisis and not by the new norms adopted by BNR, according to Libra Bank representatives. The turmoil which shook up international financial markets started last summer on the subprime market and spread to other markets too, in the background of the lack of confidence among players which was also behind the liquidity drought.Three giant banks were hit. Bear Stearns and Merrill Lynch were took over and Lehman Brothers went bankrupt.

Other two, Goldman Sachs and Morgan Stanley, turned into traditional holding lenders under the supervision of the central bank Federal Reserve.The largest insurer worldwide AIG and two large mortgage banks Fannie Mae and Freddie Mac were nationalized to rescue them from bankruptcy.

Door to lender Washington Mutual was forever locked yesterday when assets were sold to JP Morgan Chase & Co for 1.9 billion American dollars, the largest bankruptcy of a bank.

Strategy makeover

Lenders could resort to diversifying products and services in the portfolio, as a solution to raise sales."The fall of revenues will be countered through cross-selling," Nae said, adding banks will now focus more on insurance products, agriculture packages and small and medium sized companies.

The new lending regulation will bear no effects on large lenders, subsidiaries of banking groups in the European Union, which usually monitor all branches.There are13 banks in Romania subsidiaries of groups in the EU. Also, Citibank is going through transforming its subsidiary into a division of Citibank Europe, headquartered in Ireland, operation which means supervision transfer from the central bank to the Irish central lender.Nae said Intesa Sanpaolo Bank Romania has no intention of taking the same road.

Sursa: http://www.actmedia.ro

Tags: banks indebtedness percent sanpaolo which intesa norms central lending rules small bnr