"The decision to grant loans in CHF was a bad one"

(• Interview with Radu Graţian Gheţea, Chairman of the Board of Directors of Libra Internet Bank and Honorary President of the Romanian Banking Association)

Reporter: How did the year of 2019 end for the banking system?

Radu Graţian Gheţea: Last year was a very good one, where credit increased on all levels, and this is very important. It seems that there are conditions for the same evolution in the banking system and in 2020. Apparently there are circumstances for having the same evolution in the banking system in 2020 as well.

Last year we had the system grow across all segments, which means that we are in line with the evolution of the economy. When lending increases, the economy is doing well. Lending always shows that something is developing and that there is a multiplication factor, because if you are an entrepreneur who develops a business using your own sources, you will never go too far.

Reporter: In recent years, there have been a number of acquisitions in the market, and recently the press wrote that the shareholder of Garanti Bank intends to sell its Romanian subsidiary. How do you characterize this process of mergers and acquisitions in the banking sector?

Radu Graţian Gheţea: We already had signs that the M&A process will continue into 2020, and since the beginning of the year we have an announcement about a major bank in the system. We cannot say that this is a good or bad thing until the transaction is completed. We need to see who will buy that bank, whether it will be a purchase or a merger, at what price...

Reporter: The announcement related to Garanti Bank comes after other important acquisitions - all our Greek-owned banks, with one exception, have been sold. We even have a bank purchased by a state financial institution, respectively Banca Românească was bought by Eximbank. How do you see this move?

Radu Graţian Gheţea: It's a premiere and an unexpected transaction. The announcement of the state that it would buy a bank was somewhat surprising...

Reporter: What effects should we expect after this move?

Radu Graţian Gheţea: On that, opinions are divided. I, as the former president of a state bank and knowing what the cooperation between a bank and the state can be, believe that this transaction was not absolutely necessary. Those who have supported it and still support it, probably have different information. I think it was not necessary because the state bank we have now - CEC Bank - is big and has the potential for a new capital increase. Of course, there is no reason to talk about cannibalization, because Eximbank and Banca Românească are, however, two small banks. Certainly, it was a decision that went through two governments and I do not know exactly what is behind it.

Reporter: Will the mergers and acquisitions process continue in the banking system?

Radu Graţian Gheţea: This M&A process seems to have had good results so far. All acquisitions have been successfully completed and I believe that these successes open the appetite for other shareholders to capitalize on their existing potential in Romania, by putting them on sale or through acquisitions.

Reporter: Most of the banks that have been sold in recent years are among those that gave loans in Swiss francs (CHF). Do you think this move was decisive for the sale of these institutions?

Radu Graţian Gheţea: If we are referring strictly to Volksbank, then the bank was also weakened as a result of that process. The crisis that affected the banking sector also played a part, but it was very visibly affected by the fact that it gave out loans in CHF. If, however, we are referring to Bancpost, in that case I think it is more about the shareholder strategy, which wanted to close some subsidiaries in certain countries. Of course, that bank was also weakened by granting loans in CHF, but granting loans in Swiss francs was not decisive, in my opinion, in the case of the sale of Bancpost.

It should be noted that the strategy of each bank is evaluated several years after its implementation. If we talk about lending in CHF, it is clear that it was a bad decision for those who approached this strategy, even though some found it an excuse - "well, if others lend out in CHF, we should do that too". That last part did not have to be that way, because there were banks that did not grant such loans, just as there were banks that did not grant loans as part of the "First House" (Prima Casa) program. Each bank has its own strategy and, at some point, when you draw a line, you can see if that strategy was good or not. In the case of several banks sold or taken over - because when you sell at a low price it is a takeover, not a sale - we can realize that the decisions that were made were bad.

Reporter: You told us that lending increased. What can you tell us about deposits? Do people still have money? How have the savings of the population evolved?

Radu Graţian Gheţea: Yes, people do have money, as a result of the wage and pension increases. Under those circumstances, attempts to save money also begin to appear, because there are very few who can really afford to save money in the long term, who can afford to have deposits over periods longer than one year or to buy the government bonds offered by the Ministry of Finance. It is a good thing that, besides the savings of the population and of the companies, there is also the appetite of foreign banks that have subsidiaries in Romania to bring in deposits or subordinated debt for their subsidiaries here. I haven't seen anything that would make me believe that the appetite for the Romanian market has decreased. These are the necessary and existing conditions for a sustainable growth of lending, which has to be done while keeping an eye on the risks that may occur and also on what has happened over the last few years.

Reporter: What are the risks you are talking about?

Radu Graţian Gheţea: I do not think we can identify new risks, except those that might come from outside. There is the trade war between America and China. Everything has become very globalized and every negative effect appears immediately in our area. We are a part of the EU, we cannot help being affected by everything that is happening in Europe, which is interconnected with everyone and all of a sudden we have become interconnected too.

As for the domestic risks, I believe that businessmen in Romania have become quite mature and no longer react immediately to anything that a politician may say. We are a country where the economy is growing. Sure, government support is important, but the unfortunate statements made by one politician or other do not greatly affect the economy.

Reporter: However, in recent years, the representatives of the banking system have complained about the moves of the Parliament made during various debates on some legislative projects regarding the banking system.

Radu Graţian Gheţea: If we refer to the effects of some bills that have remained in Parliament, no direct effects have been recorded, but indirect ones have occurred, because much time has been wasted. For example, if we look at ordinance 114, that has made banks quite cautious in terms of development in 2019. When you draw up your plans for development, you rely on resources, which come from the profits, which have been impacted in 2019 by that ordinance. Add to that the time wasted in expecting to see what would happen. At the same time, individuals, when seeing those proposals in the Parliament (regarding the capping of the interest rates, the limitation of the enforceability of the loan agreements, the conversion of the loans denominated in foreign currency and other such wacky ideas) remained in a "wait-and-see" state. In the end, nothing happened, but the real estate that those people were planning to buy probably got more expensive, and they kept putting off that long-awaited holiday to China.

Reporter: Since we are talking about the challenges of the sector, can we mention digitalization and cryptocurrencies?

Radu Graţian Gheţea: Yes, digitalization, cryptocurrencies, banking education are among the challenges banks are facing and are among the goals of the Romanian Association of Banks.

I believe that, where cryptocurrencies and blockchain are concerned, with the increasing share of fintechs in the banking system, things will change very visibly in the next period, even if there is reluctance for now.

15 years ago, for example, banks were not very enthusiastic about using the Internet. There were hesitations, globally, because no one knew who to go to if you problems occurred. Now, the internet has come to have special security and protection systems and is widely used by the global interbank financial telecommunications system - SWIFT.

That's kind of how it is with cryptocurrencies and blockchain. They are so global that you don't know who to turn to when a problem arises. In the case of cryptocurrencies, in a few years we will probably have a solution that is acceptable for fintechs and banks and regulators alike. Right now, one of the main problems is that banks are regulated in their activity, and fintechs are not. Regulators believe they will reach a solution so as to ensure a situation where all payment participants are supervised in a balanced and equal manner - not the way banks are currently supervised, but in a way that ensures total safety of the customers' operations.

Reporter: In countries where cryptocurrencies have been accepted, are there regulation systems in place?

Radu Graţian Gheţea: I cannot say to what extent the regulators have managed to impose a set of rules in the countries where cryptocurrencies are in circulation, but what I can say for sure is that, at the EU level, the European banking regulators are studying intensively how cryptocurrency operations should work, so that customers are protected. This is a topic on the European Union's agenda, as cryptocurrencies have a very high volatility. I realize that the banking system will be undergoing a transformation. Of course, the transformation for some will be a challenge, but we have to think that, below, things will be dramatic - the number of employees will decrease, different sets of skills will be needed for people to be able to work in a bank, etc. Right now we are in a transitional period in which digitalization is entering the banking system, just as it is in every field.

Reporter: Speaking of the Internet and digitalization, for a short time you were the president of Libra Internet Bank - a bank with uses the word Internet in its name - after 12 years as head of CEC Bank - a classic financial institution, which is mainly targeting investors in rural areas. What is the difference in the business strategy between the two banks?

Radu Graţian Gheţea: This new position I have at Libra Internet Bank is a challenge for me. I was honored to enter a collaboration with Libra. In short - there is a big difference between the business model of CEC Bank and that of Libra Internet Bank. There is an important difference between the business model I applied so far a few months ago at CEC BANK and what I am doing now. I think what we are applying now is a model of efficiency, the people at Libra want to be efficient, always the first, one step ahead of the others. It is a very ambitious strategy, but when we're talking about big institutions, a promotion of a product or service is more difficult than in the case of a smaller one. At Libra Bank, there is the openness, both at the level of the executive management and at the level of the board of directors. If we look at the results of the past years, the bank's performance was very good - well above the market average. The model works, it can very easily adapt to what is needed, and it is very important to keep the model in the market. Libra Internet Bank is the third bank that has joined the banks that provide instant payment. We have a very flexible and innovative structure. Challenges are always welcome and, from my point of view, this is exactly what I need to keep me active.

Reporter: Thank you!