MINISTRY OF FINANCE: Banks have enough liquidity in RON, but they are afraid of taking on risk

Ana Săbiescu

The level of leu liquidity in the market that the banks have been complaining about lately, and which they are blaming on the fact that they lent money to the State by buying government bonds, is nowhere near as low as they claim, according to sources from the Ministry of Finance.

In fact, banks have no liquidity shortage when it comes to lei, but rather they no longer trust private borrowers, and the real liquidity shortage is for foreign currencies.

The safety of money lent out has become more important than interest, so that banks, worried by the high level of arrears and the market risk, prefer to lend money to the state.

Many people claim that lately, banks have limited their lending to buying government bonds from the Ministry of Finance. The state has become their favorite customer, to the detriment of private business, in the race for raising funds.

The Ministry of Finance sees things differently: banks are extremely concerned about the future of private companies and don"t want to take any chances. They would rather lend money to the state at an interest rate of around 11.5% - 11.75%, rather than lend to private companies at over 20%. The banks would like to lend money to consumers and companies, but they doubt the ability of both to weather the crisis. The banks are concerned that companies asking for loans now may not be able to survive the crisis for another six months.

On the other hand, the Ministry of Finance, has outstanding debts to the private sector, and is therefore forced to resort to banks.

• State bonds improve banks" solvency

Ionuţ Dumitru, chief-economist of Raiffeisen Bank, explained that there are three reasons why banks favor government bonds. First of all because they are safer, and second of all because they allow banks to access to the lombard loan facility provided by the Central Bank.

The third reason, and the most important one, is that for a bank, having government bonds in its portfolio improves its solvency rate, because these financial assets are weighted with a risk ratio of 0%.

The European Solvency Ratio (ESR) is the best known index which measures bank prudence and has the main purpose of guaranteeing the ability of banking institutions to handle a situation where its debtors enter bankruptcy and to eliminate competitive discrepancies between the various national banking systems.