László Diósi: Non-performing loans remain a major problem for the banking system

Reporter: In your opinion, how did our economy evolve last year, compared to 2010?

László Diósi: The year of 2011 was very quiet from an economic point of view, without any turbulence. It was a year of stabilization, which we needed after what happened in 2010, when many of those entrepreneurs who initially thought that the crisis would not last this long, getting ready for a shorter period of time, soon realized that the crisis will not end that quickly, and they quit. 2010 saw a wave of insolvencies in the corporate segment. The year 2010 was very troubled. 2011 was a year of macroeconomic stability and also of microeconomic stability. Macroeconomic trends are very good, especially in the region, with improvements in inflation, trade deficit and exports. The negative trends come from the rise in the number of non-performing loans, which hasn't stopped in 2011. Still, 2011 was a year of growth for banks, who managed to grow their loan portfolios, after the situation of 2009-2010.

Reporter: What expectations do you have for this year, concerning the evolution of the economy?

László Diósi: In 2011, economic growth and inflation were supported by the good harvest. 2011 was a very good agricultural year and this contributed to a low rate of inflation and to an increase in the GDP. You don't usually get two good harvest years in a row, so we will not have that in 2012. Thus, one of the risk factors for inflation and economic growth is agriculture, and the other is represented by the elections. In an electoral year there are many tensions and there is the risk of budget deficit and of overspending.

Reporter: How much was the stability of the banking system affected in 2011?

László Diósi: In general, I wouldn't doubt the stability of the European banking system like the Americans or the British do, when they have problems of their own. Capitalization and the stability of banks should come with the restructuring of some debts, because apparently some debtors can't pay off their debts. This puts pressure on the banking system. The restructuring of losses will not be done through a shockwave, but rather over the course of the next two years. I have no doubts that part of these debts will be cut just like it happened with Greece, but if you do that in one fell swoop, you ruin the banking system. So the banks must be allowed to set up provisions, over the coming years, so they can restructure the debts which are impossible to repay. The level of debt is a general problem, not just in Europe, but in the United States as well, I would say it is a typical problem of the West, whereas in Eastern Europe we don't yet have that kind of problems.

Reporter: What is your opinion on the Vienna 2.0 initiative? Can this be a solution to the problems of Austrian banks?

László Diósi: This only concerns the region of Central and Eastern Europe, where the Western Banks had a surplus of financing to make good business. If the banks will be required to revise their losses now, they will then be forced to do something: to raise capital, or to reduce their assets. Since capitalization represents a question mark, because banking is no longer as a good a deal as it was a few years ago, you have to wonder where would they get that capital? Not from the governments, because they don't have money, so they need to restructure their losses gradually, because otherwise, since they do wouldn't have capital, they would have to reduce their assets, just like Deutsche Bank is currently doing. The reduction of these assets also means that lending would stop, which would stop economic growth. So where will these changes occur? On the parent markets? I don't think so. This is where the risk is great, because if they were to need a lot of capital, then 95% of the banks which are here in Romania, (the Western banks) would stop lending. This is why this pact was created, to prevent the restrictions on lending. I wouldn't say it's a major crisis situation, but these Western banks and the authorities need to reach an agreement, that they will not affect the economies of Eastern countries through excessive measures.

Reporter: What do you think were the crucial moments for the Romanian banking system, last year?

László Diósi: For the Romanian banking system, the increase in the number of non-performing loans definitely remains a major problem, but the legal environment has become far more stable in the last two years, which helps. The dynamic of the market is constantly changing. In the first quarter there was a pricing competition on the corporate segment, then it stopped and a liquidity competition began. The hesitation in the banking system, on whether there would be enough liquidity or not, which began in September, dragged lending back. The market focused on the corporate and small and medium enterprises (IMM) segments, which is good. Government programs such as Kogălniceanu help, but they do not solve everything.

Reporter: How did lending go last year for OTP Bank?

László Diósi: It did well. In the last quarter we focused on SMEs and corporate, just like we had intended, and they both went well. For us it was a real challenge to return to the market for personal loans, which is what we did in April. We did very good in September and in October, and the announcement of the new regulations of the NBR had a positive impact on the October-December period. That is when we had customers who wanted to use the existing opportunities before the regulation of the NBR came into effect.

Reporter: What currency did the customers choose to borrow in?

László Diósi: For personal loans and working capital loans, they chose lei. Loans denominated in Euros were 2% cheaper, but people didn't take them, they actually borrowed in lei.

Reporter: Will we see the number of non-performing loans drop this year?

László Diósi: The months of February, March and April of 2011 were good in terms of non-performing loans, but as the leu lost ground against the Euro they have begun increasing. In the last quarter the level stabilized again. People have gotten used to a strong Euro and a weak leu. I can only hope that in the first half of this year the level of non-performing loans would peak and then start dropping, which would be very good.

Reporter: What are the plans of OTP Bank for this year?

László Diósi: We want to invest heavily in the training of employees and in technology. We want to have people who are better trained and have better internet services. We are focusing on the corporate and SME segments, on individuals for personal loans and on liabilities, starting with deposits and going to investment funds. What is new is that, after we did very well on the European funds side, we have decided to enter the agricultural market side and starting in April, we will enter on the market with products and offers for agriculture.

Reporter: Will you restructure the network this year?

László Diósi: The number of agencies will be similar to the one we had this year, but there will be relocations. There are agencies which were opened in 2007-2008 and which were unable to reach profitability. They will be relocated to better areas, but that doesn't mean that we will withdraw from any city.