Dominic Bruynseels: Number of non-performing loans to drop by the end of the year

The volume of non-performing loans in the banking system will only begin to decrease at the end of 2010, and things will improve starting in 2011, said Dominic Bruynseels, Chief Executive of Banca Comercială Română (BCR).

In his opinion, small and medium enterprises will continue to be under pressure, and this is the segment that BCR is most concerned about. "In the case of BCR, the level of non-performing loans for the SME segment is a cause for concern (approximately 15%), but we are dealing with this problem", he said yesterday.

The main factors that will weigh heavily on retail will be the rise in unemployment and the drop in the level of wages. However, debtors operating in the retail segment are showing signs of a recovery, says Dominic Bruynseels. He also added: "We have customers that, due to the dropping interest rates on deposits, moved their money into mutual funds, in particular into money market funds".

Most of the loans that went sour were taken during the "boom" of 2007- 2008, said the CEO of BCR. He added that the bank is currently focusing on collecting the overdue payments, meaning that the volume of transferred loans has dropped significantly. In keeping an optimistic note, he also mentioned that it is not all bad and that the bank has performing loans as well. "We have reliable customers, which are still employed or whose businesses are doing well", he said. For instance, the bank has no bad loans from customers of the "First Home" program. According to Mr. Bruynseels, the bank"s largest non-performing loan amounts to approximately EUR 30 million, which is an insignificant amount when compared to the bank"s total volume of bad loans.

• BCR estimates a 10% increase in loans, thanks to the "First Home" program and to borrowing for infrastructure projects

"We expect our loan portfolio to increase 10% this year, thanks to the < First Home > program and to the loans for infrastructure projects taken by local authorities and state-owned companies", Dominic Bruynseels concluded yesterday.

In 2009 BCR saw its loan portfolio (before provisions according to IFRS) of 3.3%, to 46.53 billion lei (10.98 billion Euros).

• The head of BCR is not worried about long term profitability

In spite of the difficult period that the economy is going through, as well as the banking sector, the chairman of BCR is not worried about the long term profitability of the bank. He estimates that by mid-2011 - 2012, the bank"s profitability will return to 2008 levels.

• Bruynseels: "Our proposal is to capitalize the earnings. We will see what the FICs decide"

The bank"s net earnings after interests and minority interests of the BCR group last year dropped 2.3 times compared to 2008, to 871 million lei (206 million Euros), according to the IFRS, and the management of the bank proposed to hold off the payment of dividends this year and to capitalize the gains. This decision will hit the five financial investment companies (SIF), which together own 30% of BCR.

"It remain to be seen how the FICs will vote on this matter (ed. note: at the General Shareholders" Meeting). Our proposal is to capitalize the profit", Dominic Bruynseels said yesterday. He said that there have been no talks to buy the stakes of the SIFs. Four of the five SIFs last year liquidated their stakes in Bancpost, each of them making 12.7 million in the process.

Mr. Bruynseels said that the proposal to increase the share capital did not come at the request of the Romanian National Bank. BCR has a solvency rate of 12% according to the Romanian Accounting Standards and 14% according to the IFRS.

On the issue of the listing of BCR on the stock exchange, the head of BCR said that it will not happen until market conditions improve: "It is true that while conditions have improved, they did not do so enough to allow us to float the bank at the price we are considering ".

• The law of individual bankruptcy won"t do the market any good

The law of individual bankruptcy will not help the market, the CEO of BCR says.

"It should make sure that all those who enter individual bankruptcy did all their best to pay off their debts", said Dominique Bruynseels, who added: "We have clearly stated our position on the matter, but our proposals were rejected. As a result we will have to be far more careful with the people we lend money to. This may not affect the cost of loans, but it will definitely increase our risk aversion".

BCR is the largest Romanian bank in terms of assets. The bank"s shareholders are EGB Ceps Holding GmbH (a company owned 100% by Erste Bank), which owns roughly 69.3% of the share capital of BCR, and the five financial investment companies (SIFs), each holding approximately 6%.