THE BURSA CONFERENCE: "THE ROLE OF BANKS IN THE RESTRUCTURING OF COMPANIES" Without trust there is no credit

Prior to the conference "The role of banks in the restructuring of companies" I wrote that it was "too late for the restructuring of bank loans". Unfortunately, it was only after I participated in the debates that I realized that in fact it was far later than I had expected.

Why? Because banks can not participate in the restructuring of companies under the current circumstances, as partner or creditor that tries to recover their non-performing loans, because it has been proven that they are facing almost insurmountable difficulties when it comes to their own restructuring. So, where could that expertise be expected to come from?

In his speech, Eugen Lascu, managing partner at Thepesia Corporate Advisory, said that "often times, the banks have lent money to finance illusions", amid the deficient knowledge of their customers.

At the time of the lending boom, the borrowers' exuberance overlapped with that of the bank, as no one was interested in looking out the window to note the dark clouds that were gathering over the international markets.

Reassured by the statements of the government's officials and of the NBR, businesspeople became aware of the danger far too late, and when they did they started taking the money out of their companies. Participants in the conference emphasized the fact that the owners of the companies do not want to offer personal guarantees when they are asking for loans.

Why? Because they are acting rationally, since they have the opportunity to see the fiscal and economic environment that they operate in directly. In doing so, they are providing a great service to the National Bank of Romania as well: their choice doesn't "disturb" the hypothesis of the rationality of economic agents, a hypothesis that is part of its macroeconomic models.

NBR vice-governor Bogdan Olteanu said that "lack of the companies' equity is the main hurdle to the financing of companies", and this lack is the result of the fact that "business owners took home their money during the good days". We have once again the same rational behavior, amid the low confidence in the outlook of those companies.

But isn't the lack of capital manifested at the level of the banking system? It is true that the capital adequacy ratio is almost 14%, but that ratio is calculated using the risk-weighted assets, and we know how well risk assessment was done in the past.

According to an article in "BURSA" at the end of last week, officials of the NBR said that "some banks try to game the system by restructuring the loans". The main reason for doing that is to artificially improve the capitalization indicators.

Some of the participants in the conference have attempted to justify the reticence of banks when it comes to lending money, claiming they are responsible for the deposits of the population. Why didn't we see at least statements, if not something being done about that during the period when lending was booming?

Under these circumstances, the vicious circle of the lack of confidence in the Romanian economy can not be broken by calling upon the National Bank and the commercial banks to change the lending policy.

The dictionary definition of credit is "borrowing money on the basis of trust or solvency".

The origin of the word "credit" comes from Latin, where "creditum" meant "to believe" as well "loan". It is hard to believe that the lack of trust, which is probably generalized to cover the entire economy, can be eliminated through new laws, regulations or statements of the authorities.

All that remains is the stubbornness o the entrepreneurs to endure in an extremely hostile environment. The Secretary General of the Romanian Association of Businesspeople, Cristian Pârvan, said that "entrepreneurs must be praised for their heroic efforts to keep their businesses alive", and other representatives of the business sector have endorsed this point of view, reminding of the fiscal pressures they are subjected to, as well as about the instability of the fiscal environment.

The stubbornness of existing entrepreneurs is not enough. Romania needs an idea, regardless of how "out there" it may seem, to tap into its potential, and for that, all that is needed is a legislative environment that is stable in the medium and long term, an environment that would not treat entrepreneurs as potential tax evaders. Otherwise, no one will take on the risk of making major investments in the industry or in agriculture.

The world's economy is currently going through a restructuring process, which can prove without historical precedent in a near future. Any illusion concerning the "management" of the restructuring by the authorities, whether they be national or international, is pointless. Companies which, a few years ago, were making plans for global expansion, are now rushing back to their countries of origin and seek methods for the orderly restructuring of their loans taken out during the times of economic boom.

This dynamic is far too quick and complex to allow governments to establish strategic sectors for which to encourage financing. All that is left for the authorities is to show faith in the abilities of the entrepreneurs and to release them from the burden of presuming them guilty by default.

For that kind of an "act of faith" it is not too late.