National Bank Warns: SMEs Will Give Bankers Some Headaches

Ana Săbiescu

The economic slowdown in the final months of 2008 and the first quarter of 2009 will burden the service of debts to private banks, especially for small- and medium-sized enterprises, who pose the greatest lending risk, according to a report of the National Bank of Romania (BNR) on financial stability released yesterday.

The BNR report also indicates that the private companies" reliance on short-term financing is a weakness of the sector, especially considering that the heightened lending restrictions imposed by banks could limit such credit lines.

Although the domestic banking sector remains solid and well capitalized, the analysis on the stress tests made by the BNR indicate that banks generally have a good capacity to withstand moderate shocks, the lending risk and the liquidity risk have become more significant.

In order to keep the situation under control, the Central Bank has decided to run stress tests for all the banks in the Romanian banking system and to invite them to ensure the capitalization necessary for maintaining a minimum solvency rate of 10% in 2009 and 2010.

The BNR report on financial stability also indicates that the deterioration of the companies" capacity to repay their loans leads to the migration of a part of the ongoing loans to a higher risk tier. Consequently, the cost of provisions also increases by 60% in 2009 and 20% in 2010.

Small- and medium-sized companies in Romania have been severely affected by the current crisis as the demand for goods and services has reduced drastically. Banks have also started to be more cautious and decided in many cases not to renew the credit lines offered to small companies. Additionally, the State levied a minimum lump-sum tax, which is likely to cause numerous cases of insolvency.