"For many people who don't use their services, banks serve no purpose"

Reporter: How would you describe the first months of this year, in terms of the evolution of the banking system?

Radu Graţian Gheţea: 2013 started off just like the previous years, slower. January is usually not a good month for the banking system. In the first quarter, the banking system was profitable, according to the data published by the National Bank of Romania (NBR). CEC Bank was also profitable in the first three months of the year.

This doesn't mean that we should expect the entire year to be profitable, because the "struggle" with non-performing loans and with the high-levels of provisions which banks are required to set yup will continue in 2013 as well. Because of that reason, I can't make a prediction for the evolution for the entire year. Let's not forget that we need to prepare for the adhesion to Basel III, which will become applicable starting with January 1st, 2014, which involves efforts from banks.

It is a cause for concern that the prudential requirements will be a lot tighter than they are now.

I am optimistic that lending may pickup again towards the end of the year, considering that the economy had two consecutive quarters of growth. Agriculture, which holds a significant weight in the GDP, depends a lot on the whims of the weather, as we do not have an irrigation system and an intensive agriculture. If we get a good agricultural year, then the economic growth will be more substantial economic growth and we will get to see the banks step in. The lending to companies is the first that needs to be resumed, because it will create the conditions for job stability and safety, and will stimulate the demand for loans from individuals. In my opinion, we shouldn't wait for banks to step up their financing of the economy, if it isn't performing well enough. The economy must first recover, and then the lending would resume. I think that we will see these two things happen in 2013. There are exceptions. Last year, at CEC Bank, lending to companies increased 32%, and this year we want to keep up the pace.

Reporter: Will non-performing loans be the main challenge for the banking system this year as well? According to some opinions in the banking system, the ratio of "troubled" loans should fall, given that banks have set up provisions for most of them, and the level of loans granted over the last few years has been very low.

Radu Graţian Gheţea: I don't want to contradict this statement that in some banks the pressure generated by the non-performance of some portfolios. These things differ from one bank to the next, and across the entire banking system we may have a large volume of loans for which provisions will need to be set up. When companies will get to the point where they have market stability, we will probably see a stabilization of portfolios. For the moment however, we can't expect a relaxation of the provision system.

Reporter: Some bankers have said that the provision system for non-performing loans used in Romania is far more burdensome for banks than those used in other countries. What is your opinion concerning this subject?

Radu Graţian Gheţea: I think that we should refer to the Romanian economic conditions. Of course we can conduct studies and analyses, to get a picture of the way things are in other countries. But we shouldn't rush to the conclusion that other systems are better than ours. These comparisons need to have a solid foundation.

Reporter: The degree of access to and usage of bank services is very low in Romania compared to the average of the European Union. In rural areas, banks have a very limited presence. Should lenders try to penetrate deeper on this segment?

Radu Graţian Gheţea: CEC Bank represents the exception to the rule, as it has almost one thousand branches in the rural environment and in small towns. From our experience, I can tell you that the people who are outside the banking system have no need for the services provided by banks. These people are not eligible for loans, they do not have enough money to set up deposits, they do not make payments through Internet Banking or through mobile banking, because many of them do not have a phone or even internet access. In my opinion, the problem is elsewhere. Where there are opportunities in the rural environment, we are present.

Unfortunately, we have an important segment of the population that can't have a relationship with the banks. There are also many people who are counted as bank customers, even though they only use the bank service because they are required to do so, since their salaries or pensions are paid using their card.

I do not agree to the idea that Romania has underdeveloped banking services because banks do not provide sufficient services to the population. Its banking is underdeveloped because some of the people don't need banks services. It is true that some people would need loans, but due to their low earnings, they are not eligible to get them.

Reporter: In the first quarter, we have seen withdrawals from the deposits, especially from non-resident individuals and companies, amid the decision to tax deposits greater than 100,000 Euros opened with Laiki Bank and Bank of Cyprus. Residents' deposits also fell in April. Do you expect this trend to continue or will we see a recovery in the rate of saving in the near future?

Radu Graţian Gheţea: Sure we can blame this drop on the situation in Cyprus, but not fully. If we review the evolution of the previous years, we will see that in the first quarter we haven't had any strong increases in deposits, but rather a stagnation.

Deposits depend on savings, and in the beginning of the year, people usually have fewer savings, due to their expenses with the winter holidays and with utilities, which are higher during winter. The Cypriot crisis had a good ending in Romania, so there are no reasons to pull the money out of the deposits. I am not expecting a deviation in the evolution of the savings rate compared to the previous years.

Reporter: Several MPs have proposed a new draft law concerning the insolvency of individuals. Does the banking community still view such as project as opportune?

Radu Graţian Gheţea: We have reviewed the various initiatives concerning the insolvency of individuals, and we have indeed viewed those versions as inopportune. This does not necessarily mean that we think Romania doesn't need a law on the insolvency of individuals.

At the Romanian Banking Association there is a concern on that subject, and some of its members have even come up with the idea of banks writing such a law. We are not allowed to make legislative proposals. We are, however, open to carefully look at the proposed projects and to make amendments and suggestions for their amendment, so that they can fit our wishes as well. As a conclusion, I would like you to note that the Romanian Banking Association is not against a law on insolvency of individuals, it has merely been against or has viewed as inopportune the versions that have been promoted so far.

We think that such a law is beneficial to society, but it also needs to be done after consulting with the banking sector.

While we are open to a law concerning the insolvency of individuals, we are a lot more concerned about the manner in which the law of insolvency of companies is applied, which is an issue we are faced with constantly. I think that our hesitations when it comes to the draft laws on the insolvency of individuals also stem from the experiences we've had when applying the law of the insolvency of companies.

It is very unpleasant that upon the implementation of the steps of the reorganization plan, a number of almost unbelievable things start happening. For example, a lender who, upon the starting of the insolvency procedure was in the position of main creditor, will find out in the process that a very important "contract" has been discovered, usually between the company and its shareholders or its administrators, which makes the latter two creditors as well. While that only makes them unsecured creditors, it puts them on the creditors' committee, where you get a vote regardless of your guarantees, or of the size of your claim against the company. From a procedural standpoint, there are some problems, for which we have addressed to the Parliament proposals for the amendment of the law.

Reporter: Confidence in the banking system has deteriorated over the last few years, due to the financial crisis. In Romania, this faith has been affected by the litigations between the banks and customers, caused by the existence of some abusive fees. How can the banking system rebuild this trust?

Radu Graţian Gheţea: There is a great level of concern, not just in Romania, but in Europe and globally, concerning the relations between banks and customers. These should be based on trust, but they have now become the exact opposite. In Romania, what has happened is that the European regulations concerning loan agreements, namely the Directive 48/2008 of the European Commission, was implemented during the crisis period, when people were tense and concerned with the fact that their revenues dropped and they didn't have job security anymore, either.

This has amplified the tension, in an unjustified manner, because unrealistic expectations were created. Now we have the idea of abusive clauses. I have repeatedly said that the banking community said isn't looking to maintain any abusive terms in the loan agreements. What we want is for the ruling on whether a clause is abusive to be made with the greatest degree of responsibility rather than be left to an lower level court. What we maintain is that if any party, whether it is the bank or the customer, is unhappy with the ruling of the Court of Appeal, to be allowed to go the High Court of Cassation and Justice.

We need to give the same rights to customers, and to banks. If the cases that affect a few individuals can be tried at the High Court of Cassation and Justice, the trial of the cases that affect several thousands or tens of thousands of people, or even the entire banking system should have the right to be tried there. For that reason, the NBR is conducting a study on the impact such a decision would have on the banking system.

The wish of our banks is to have customers that are as pleased as possible. If they are happy, banks get their money back from the loans they took out and they can then return it to those who had faith with depositing them.

Maybe we shouldn't lump together this moment which means the passing or not, starting with July 1st, of the law no. 193 concerning abusive clauses, and trust in general, which is a complex subject. What we have here is a matter of legislation. Customers should not be worried that banks introduce abusive terms in the loan agreements, because they can go to court. Because of that, we support the idea of allowing appealing the rulings all the way to the High Court of Cassation and Justice, so that anybody who wants it, whether it's the bank or the borrower, can take the lawsuit all the way to the highest court.

Reporter: Thank you!