THE LAW OF GIVING IN PAYMENT HAS PASSED THE SENATE, WITH A CAP OF 150,000 EUROS The law of giving in payment - has good and bad parts for borrowers and banks alike

The much awaited debate held yesterday in the plenum senate, has brought good and bad news to both parties involved (banks and customers).

The law has been voted unanimously by the Senate, and if the new regulations get past the jurists of the Chamber of Deputies, will be applied to ongoing loan agreements, as well as to loans taken under the "First Home" program. The amendments proposed by the banking system have been rejected by the senators.

Still, one of the proposals made by the banks has been voted by the senators - a cap of 150,000 Euros on the amount of the loans which the law would apply for.

The amendment has been proposed by PSD senator Trifon Belacurencu, about whom the media wrote, in 2011, that he had misreprented facts in his statements of interests.

The National Integrity Agency (ANI) has found that the PSD senator Trifon Belacurencu has violated the legislation concerning the legal regime of incompatibility with certain positions and that he allegedly misrepresented facts in his statement of interests, Mediafax wrote, in November 2011, and it also mentions mentions that since back in December 2008 the MP has been in a state of incompatibility with his MP position, by serving as senator in the Romanian parliament, as well as the position of administrator with SC Dobrogea Gaz SRL Tulcea.

At the time, he also held the position of shareholder in SC ALCEDO SRL Tulcea, being the founder of SC Valcons SA.

At the time, the ANI notified the Prosecutors' Office of the High Court of Cassation and Justice that senator Belacurencu may; have committed the offense of misrepresentation.

The MP disputed the report of the ANI, and after he lost the first lawsuits, he appealed at the High Court of Cassation and Justice, according to Agerpres.

Belacurencu said, in the parliamentary elections of December 2012, the second term as a senator.

Concerning the 150,000 Euros cap, lawyer Gheorghe Piperea, the initiator of the law promoted by liberal deputy Daniel Cătălin Zamfir wrote on his Facebook page: "Unfortunately, an amendment has been accepted which will greatly diminish the applicability of the law: a cap of 150,000 Euros. It is a mistake, because it introduces an unallowable discrimination, which will make those that have a debt of 151,000 Euros, as well as the one who has a debt of 300,000 Euros, to challenge the law in the Constitutional Court, after having brought a lawsuit against the bank. While I wanted the law to be simple and not to require lawsuits".

Beyond that aspect, the vote in the Senate is a great victory, he says.

Florin Georgescu, the first deputy governor of the NBR said yesterday, after the session of the parliamentary group of the PSD, that the law must address social cases: "We should not endanger the stability of the financial system, but we also shouldn't extend a generalized social protection to those that do not need it and to those that no longer want to repay their loans due to personal reasons".

The legislative text will be subjected to one last vote, in the Legal Commission of the Chamber of Deputies, which is a decision making party.

• Dragu: "We should not dent the confidence in the market - of the banks in their customers and vice versa"

The law of giving in payment must take into account the social cases, said Anca Dragu, the Minister of Finance, at the "Romania Investor Days Conference", in London. She thinks that this would be an approach which would create trust among banks and among customers equally.

"I have presented the point of view of the Government, I have participated in the Commissions in the Parliament, we think that people that need it should receive support, , we need to look at the social cases", said Anca Dragu, who added: "We mustn't dent the confidence in the market- of banks in their customers and vice versa. The talks are not yet complete. The law must take social cases into consideration. In a few weeks the final draft will be ready and we hope that the government's point of view will be taken into consideration".

Paul Gheorghiu, the chief of cabinet of the Prime Minister, wanted to make a clarification: "The government isn't alone (ed. note: on this matter), the NBR has presented an opinion, there have been debates and there is pressure from the European Commission".

Daniel Dăianu, a member on the Board of Directors of the NBR, intervened: "It is an unfortunate wording to say that there is «pressure» from the European Commission. The pressure has to come from reason. The country's financial stability should not be affected (ed. note: through this law). The talks have not been completed yet and we hope that lucid people will prevail".

• Lucian Isar: "Society protects banks, through the NBR and more"

The role of financial-banking institutions, similarly to that of insurance companies, is to manage risks, Lucian Isar, who was an executive with Bancpost and Banca Feroviara wrote a few days ago on his blog.

He wrote: "The essence of banks' business is to manage credit risk. People who take out loans may not repay them. (...)

That is the actual business of banks - to give out loans and to manage the credit risk and for that activity society protects them, through the NBR and in other ways".

Among other things, Lucian Isar explains: "From the very beginning of starting the business of lending to individuals, banks take into account the fact that a certain number of the total number of borrowers will not be able to repay their loans. This forecasted default ratio in relation to the entire loan portfolio affects the credit margin that the bank charges all of its customers. It isn't interested in who doesn't pay or when that happens over the lifetime of the loan, only in the percentage out of the total that don't pay.

Bank managers are paid so well precisely to better manage the risks specific to the banking business.

Furthermore, compared to the estimate tied to the likelihood of some of the borrowers not repaying their loans with or without collateral/mortgage an estimate is also being conducted about the value which the bank will be able to achieve in the event of having to sell the collateral/guarantee.

That is the reason why banks don't finance the entire estimated value of the home. From the same point of view, there is no excuse for the faulty and sometimes fraudulent assessments conducted by the evaluators that belonged to the banking groups. (...) The job that commercial bankers are paid for is to manage risks. The estimation of losses in the portfolio that all customers are rewarded for, regardless of whether they are delinquent or not, must also be found in the end results. Errors in management and in some cases the proven infractions or not yet proven should not be offloaded on the consumers of bank lending products".

No one would have raised the issue of the clarification of such a law of a giving in payment nature, Mr. Isar said: "I have never heard of a bank in Romania refunding the risk premium charged annually to its borrowers who paid fairly until maturity their 10-20-25-year loans so that we can hear arguments of symmetry in favor of forever pursuing a delinquent borrower whose property was initially overvalued, and later it was sold through an accelerated procedure, to speak euphemistically".