NICOLAE CINTEZĂ: "It's not the NBR that wants the bail-in, but the European Union"

The Romanian authorities want Romania to enter the Eurozone, but they are not capable of transposing the provisions of the European legislation into ours, and when they do, they do it incorrectly, says Nicolae Cinteză, the head of the oversight division of the National Bank of Romania (BNR).

His statement comes as the European Commission has begun the infringement procedure against Romania for failing to transposition the directive which concerns bank turnaround and resolution.

According to the Commission, we only have two months available to pass a law that includes the EU regulations in the sector, or else Romania will end up before the European Court of Justice.

The NBR has addressed to the Ministry of Public Finance (MFP) a text which transposes the European regulations in the field, which also include the bail-in.

Concerning this procedure, Mr. Cinteză told us: "The text that the Central bank sent to the Ministry of Public Finance does nothing else but transposition the European provisions. We have to understand that it's not the NBR that demands the application of the bail-in, as one of the possible solutions to saving distressed banks, but the European Union.

Ordinance no. 99/2006 concerning lenders and capital adequacy says that the second measure to stabilize a bank includes the Guarantee Fund becoming a shareholder in the bank.

Let's assume that a bank is in a bad situation, with a low solvency ratio, and it has a share capital of 600 million lei, but it has losses of 350 million lei. For the Guarantee Fund to become a majority shareholder, in order to improve solvency, it would need to cover the 600 million lei plus one leu. But the ECB says that any amounts made available to rescue the bank by the Deposit Guarantee Fund, even if the source of financing is private, represents a state aid and must be approved by the European Commission, which states, in turn, that, prior to the Fund becoming a shareholder in a bank, the shareholders need to bear the previous losses. Thus, first the share capital is reduced by the amount of the loss - in our scenario, 350 million lei -, which means the new share capital would reach 250 million lei. As a result, the Guarantee Fund would only need to cover the new amount, of 250 million lei, plus one leu, which is far smaller than 600 million lei. Thus, the effort of the Fund decreases, with applicability to the other deposits (which exceed the amount guaranteed by the state, of 100,000 Euros).

There are plenty of discussions concerning the constitutionality of the bail-in measure imposed by the EU.

In my opinion, comments like that must be overcome, because when we accepted to enter the EU we did accept that and that any European directive will be transpositioned into the national legislation".

NBR vice-governor Bogdan Olteanu recently explained that the resolution is the mechanism by which the good parts of distressed banks are rescued, considering that a liquidation according to the general insolvency principles could cause too many collateral elements.

"There are various mechanisms for attempting to save banks. For instance, assets and liabilities from a bank are taken over and transferred to another bank, the public authority sets up an empty «shell» called a bridge bank and the good assets and liabilities are placed within that «shell», while the bad assets, together with the stock, become part of the insolvency procedures, and the banking license is withdrawn. The bridge bank would be placed under temporary management, as it is the property of the state, and then it would then get privatized, within three years at the latest, according to the law. In Romania, we have set up the bridge loan and a few other instruments, and the European Commission and the European Parliament have issued this Directive, which was supposed to be transposed by the end of 2014", said Mr. Olteanu, who added that the project to transposition the European directive is currently at the stage of consultations between the Ministry of Justice and its other initiators.

"The representatives of the Ministry of Justice have an issue with the fact that, essentially, the bank is being taken away from its owner, and the right of ownership is violated. The argument of European lawmakers is that we are talking about an urgent and exceptional situation wherein the overall interest concerning the depositors' protection, the functioning of the payment systems, and financial stability carry more weight than the protection of the shareholders' right of ownership", according to the NBR official.

EU Directive 2014/59/UE, which Romania has failed to transposition and as a result has been hit with an infringement procedure, is a central element of the banking union, set up in order to create a safer and stronger financial sector following the financial crisis.

Cinteză: "I am surprised at the «original» manner in which the European provisions are transpositioned into our legislation"

Nicolae Cinteză is extremely displeased with the way the European legislation is transposed in the national legislation.

He said: "I am surprised at the «original» manner in which the European provisions are transpositioned into our legislation. This is a national populism that only causes harm, creating animosity between banks and customers and harming our country's image abroad.

Two examples would be Ordinance 50/2010 concerning loan agreements for consumers and the amendment of the Law no. 193/2000 in order to transposition Directive 93.

The former has produced severe negative effects for six months, as it applied retroactively, and then an Ordinance was issued to remedy the situation.

Transposing Directive 93 (concerning the abusive clauses of contracts concluded with consumers), allows the ruling of the courts to be extended to all of the ongoing contracts of the bank in question, as the European directive does not stipulate that, instead it says that the law will only apply to contracts concluded one year and a half prior to the publication of the Directive in the European Gazette.

In Romania, the Directive has been transposed in 2008, and, in 2012, an amendment has been introduced, which eliminated the principle of the non-retroactive application of the provisions of this directive. Furthermore, the completely opaque manner in which Law 193/2012 was amended, has led to a solution rendered in a lawsuit or in the case of several lawsuits to also be extendable to lawsuits that have never been the object of the case tried by the courts, thus eliminating the right of defense. This led to ridiculous situations where a Court of Appeal can invalidate a ruling rendered by the High Court of Cassation and Justice in an individual lawsuit.

The ANPC currently has collective lawsuits with several banks, of which six have been filed against BCR.

If the ANPC wins one of these lawsuits, then the ruling will have to be extended to apply to the other contracts as well".

According to the head of oversight within the NBR, Directive 93/2000 has not been transpositioned correctly. He told us that currently, there is a request made by one of the banks, which requires declaring the law as unconstitutional.

In the report concerning Romania, the International Monetary Fund (IMF) specified the fact that if class action lawsuits filed by the ANPC were admitted, a systemic risk would be created.

The representatives of the ANPC told us that the amendment of the Law no. 193/2000 requires professionals to amend all ongoing adhesion contracts, if a certain clause in such a contract is ruled abusive by the Court.

In March, Marius Dunca, the president of the National Authority for Consumer Protection, said that the institution he leads sends the courts daily minutes containing clauses which it deems abusive, found in loan agreements.

Some of the banks' abuses found following the notifications made by the ANPC include the hiking of the interest rate; the change of the fixed interest rate margin; calculating the penalty commission for the whole loan, rather than the outstanding amounts; the application of a risk commission (which was removed from the contracts by Government Emergency Ordinance No. 50); the application of the management fee, calculated prorated to the whole amount; the charging of an advance repayment fee, the failure to notify the borrowers about risk etc.

Mr. Cinteză emphasizes the fact that, even though "the adhesion treaty stipulates that any legislative initiative which would affect the stability of the banking system needs to be approved by the ECB, Romania did not ask for such an approval": "It would seem that what has happened in Hungary following the lack of approvals from the ECB (ed. note: the infringement procedure has been initiated against Hungary) was a lesson we did not learn from".

The NBR official concludes: "Taking into account the way we transposition European legislation and the legislative initiatives that have been submitted in the Parliament lately - and I am referring here in particular to the one which stipulates that borrowers returning the house to the bank are no longer required to repay the remainder of the debt - the risk perception is very high".