Paolo Mariani, Banca Italo Romena: The degradation of the loan portfolio will probably stop

Reporter: What opportunities for growth does Romania have in the current context?

Paolo Mariani: Romania surprised me a lot and I think that this country could represent a big investment opportunity for Europe. It is important for Romania to believe that as well, by supporting those areas which are its main strong points. For example, the agricultural sector, where there are still a lot of plots of land which are uncultivated, whereas there are numerous international investors who are interested in buying them. If you succeed in increasing output per hectare, I think that could be extremely beneficial for Romania. Another sector which has a lot of potential for Romania, is that of renewable energy, which is backed by a support mechanism, but somebody needs to pay for that incentive. In Italy, the incentives are paid for by the consumers, through the bills they pay. From my point of view, agriculture is more structural, and renewable energy, is more circumstantial.

We want the Romanian market, after the moments it went through, of a bit chaotic, but tumultuous growth, to get to a mature, orderly stage, and for that to happen three factors need to exist. The banking system needs to contribute through evaluating and supporting companies, investors need to believe in their initiatives, which need to rely on enough capital, and the national economic system needs to have an industrial policy with clear rules, with a stable institutional system. If these three elements exist, private and institutional investors will come to Romania to invest. Investors want to have legal certainty, low fiscal pressure, and the rest are opportunities.

Reporter: Did you have signs from Italian investors who want to invest in Romania?

Paolo Mariani: We have signs of interest in the sectors of renewable energy, agriculture and in other sectors. What investors currently need is stability and predictability, whether we are talking about Romania or other countries. We are trying to reassure entrepreneurs about the opportunities which Romania can provide. Like in any countries, there are moments of economic crisis, where there can be tense situations, but these things should not represent obstacles on the path which Romania has committed to.

Reporter: How did lending evolve, in the first semester, at Banca Italo Romena?

Paolo Mariani: In the first months of the year, credit quality did not improve and there have been plenty of restructuring and rescheduling operations. We have taken these steps for the companies which we thought had a future. We are not trying through restructuring and rescheduling loans to extend the agony of companies which have no future, instead we are trying to help those companies, which represent the healthy tissue of Romania, and which need to survive, to allow Romania to overcome the crisis.

The number of non-performing loans in the banking system has increased, among others due to the fact that most banks have exposure to the real estate sector, to a greater or lesser extent.

Reporter: How have the bank's customers been affected by the strong gain of the Euro against the leu?

Paolo Mariani: It is obvious that the fluctuation of the exchange rate over the last two months is not beneficial, and a situation of instability can only hurt the exchange rate, especially near the elections. In order to assess the purchasing power of families and companies requires a longer observation period. The exposure in Euros of customers and their receiving of their wages in lei is not exactly helping their purchasing power. A depreciation of the leu of 7.5% against the Euro certainly represents a reduction of the purchasing power, which wasn't that high anyway. Obviously, in the second semester, aside from the economic issues, which have already influenced our customers' lifestyle, we could also have the negative effects of the exchange rate. The volatility of the exchange rate coincided with a series of foreign and domestic events, which will definitely be overcome. Before Italy going to the Euro, the Italian lira was also experiencing major swings. Investors always want stability, that's the first thing they ask for. In Italy, they say that when the dust starts rising, in other words they no longer feel stable ground beneath their feet, investors leave.

Reporter: Last year, Banca Italo Romena was sanctioned by the ANPC, for concluding a loan agreement which had certain information missing. What happened? Did you dispute the decision?

Paolo Mariani: We have disputed the decision, because, we feel that we gave the customer all the information which we considered accurate, from a legal point of view. Sometimes the law isn't so clear and easy to comply with, and that is true for Italy as well as for other countries. The court will issue a ruling and we will abide by it, regardless of what it will be.

Reporter: How would you comment the information which appeared in the media, which state that Banca Italo Romena was targeted by hackers?

Paolo Mariani: That is completely untrue. We ran additional checks aside from our routine controls. I've been in Romania for quite some time, but so far we did not even have one case of hacking. What I can tell you is that all of the checks required by the law were made, and nothing was found. From my point of view, it is a very serious thing when such statements are made without any evidence to support them. But we had no customer express concern over this information.

Reporter: What are the plans of Banca Italo Romena in the second semester of the year?

Paolo Mariani: Banca Italo Romena does not want to follow models, but rather to finance those initiatives of companies which have their own means in various sectors, such as agriculture, energy, good manufacturing and services, in other words, companies which are mature and can handle being on the market. We don't want to finance speculation and we don't want to finance those companies which rely exclusively on the aid of the state or on European funds.

As for the projects of the Bank, we have two major avenues that we are focusing on. On one hand, an important analysis of our human resources, which would be capable to communicate with our customers, in other words small and medium enterprises (SME) and liberal profession practitioners. We did everything we could to cut costs, because the Bank, like any company needs to be increasingly more efficient and that is the first direction we must follow for doing that. On the other hand we are trying to develop the markets where we operate, we don't intend to leave the towns where we have already established a presence, because we do not think that there are market problems, but that the problems come from the ability to fully understand this market and to optimally meet our customers' needs.

Reporter: The SME segment is very exposed to the crisis, as they are dealing with serious problems. Aren't you concerned that SMEs will have problems in repaying the loans?

Paolo Mariani: We need to know how to assess those companies which can exceed the difficult situations, which are looking to go to other markets, with feasible projects. Right now, the companies which have failed are those which have insufficient assets, and therefore do not succeed in overcoming the significant changes which the market is going through. In my opinion, not to support the companies would mean to favor the collapse of an economic system. Given the preconceptions against banks, we will need to do a better job of conveying the message that banks don't want to make it harder for companies, but they are actually there to be of service.

Reporter: How big a turnover are the SMEs which are included in the new strategy of Banca Italo Romena expected to have?

Paolo Mariani: The segment of companies which we are considering are those whose turnover starts at 1-2 million Euros - because under this turnover we should more like be talking about the entrepreneurs, than companies - and which reach 40-50 million Euros. These are companies which are considered SMEs in Italy as well. Companies bigger than that need stronger financial support, which would lead to a stronger concentration of the risk for the Bank. This does not mean that we won't work with that type of companies as well, but we may do that through specific operations, which rely on adequate collateral. In Italy, and in Romania as well, the SME segment with a turnover between 1 and 50 million Euros represents 95% of companies, and the other have a smaller weight. I don't think that it is only the turnover which could differentiate companies right now. There are companies with a small turnover, but which have very specialized activities, particular financial requirements, export to all of the corners of the world and conduct complex operations. These are harder to finance and to understand, unlike companies which have a big turnover, but with a simpler output and which need traditional banking assistance. What we need to do is to change our culture and parameters for assessing companies, in trying to understand better how they generate their turnover, on the market which the companies operate on.

Banks have divided their customers in categories, both when it comes to companies and companies. From my point of view, this separation was not always good in helping companies to know their customers better. Any model, even the most sophisticated one, can't replace the evaluation ability, which the bank has to have through its employees. Banks should follow a logic of efficiency, of market knowledge, accompanied by the culture and the development of their own resources, but it takes time.

Reporter: What is your view on the developments of the European and domestic banking sector in the coming semester?

Paolo Mariani: I pay attention to how the market moves and it is difficult to make predictions, considering what Europe has on its plate. Definitely, I think that banks will continue to suffer, since, even if there will be a slight improvement in 2013, its effects will not be felt immediately by the balance sheets of the banks. The deterioration of the loan portfolio may stop, but what the banks will have accumulated by then will not disappear by magic, it will take time for the banks to detoxify themselves from those non-performing loans, which have accrued over the last few years. That is why banks will be forced to improve what can be improved in their models and strategies, to be able to bear, with an adequate profit, the losses they will have to recoup from the non-performing loans which they have on their balance sheets. This applies to Romania, and to all of Europe as well. Romania may be doing better than Italy and the rest of Europe, because the development of the Romanian economy through the GDP it may see in 2013, may help the GDP. The estimates around the GDP of Italy and of other countries are negative, even for next year. It will take a lot of time, because it is not easy to exit the crisis.