Thursday, October 13, 2011

Foreign Banks in Romania Must Add Capital, Central Bank Says

Oct. 13 (Bloomberg) -- International banks operating in Romania will need to inject more capital into their units to weather market turmoil as the local industry heads for a second consecutive year of losses, said Nicolae Cinteza, the central bank’s supervision chief.

Foreign banks have brought 850 million lei ($271 million) into Romania this year as they grapple with rising bad-loans, low demand for new credits and high market volatility.

“All the banks, especially the Greek ones, must be prepared to face contagion, even though they are well capitalized right now. It’s a matter of credibility,” Cinteza said in an interview. “If one of the parent banks has problems, the Romanian units can be affected, that’s why we advise them to have strong cash reserves.”

Romania’s banking industry posted a combined loss of 516 million lei last year as 22 of the 42 banks in the country were unprofitable, central bank data show. Bad-loans accounted for 13.6 percent of total lending at the end of August, central bank Deputy Governor Cristian Popa said on Oct. 5.

The central bank has asked Greek banks’ local units to maintain “adequate liquidity” as protection against a possible sovereign Greek default, while some Greek-owned lenders in the country also needed capital hikes, according to Cinteza.

“We have our scenario regarding the impact of a Greek default on the Romanian banking system, but we cannot disclose it,” Cinteza said. There haven’t been any “significant capital outflows” from the country this year, he said.

Inflows Peaked

The amount of money being brought into the country to strengthen the banks is down from about $786 million last year as bad loans accelerated.

Romania’s banking industry is dominated by Austrian lenders, which control about 39 percent of the market, followed by Greek banks with 15.5 percent and French lenders with more than 10 percent, according to central bank data. Erste’s BCR is the country’s largest lender by assets, followed by BRD-Groupe Societe Generale SA.

Alpha Bank AE has to date injected about 50 million euros ($69 million) into its Romanian subsidiary, the unit’s Chief Executive Officer, Sergiu Oprescu said in an interview.

“We just completed a significant capital increase and we don’t think we will need another one anytime soon,” Oprescu said. “The situation in Greece has had no impact on our business so far. Still, growing non-performing loans are the biggest problem in Romania right now.”

‘Strong Liquidity’

Alpha Bank Romania SA has a “strong liquidity position” and doesn’t need to borrow money from the central bank, according to Oprescu.

Erste Group Bank AG said yesterday it plans to boost capital at its Banca Comerciala Romana SA by as much as 618 million lei, pending shareholders approval on Nov. 14, while Oesterreichische Volksbanken AG will inject as much as 200 million euros in the Romanian unit.

As an industry, Romanian banks remain adequately capitalized and passed the latest stress test against loan losses carried out by the central bank in the first half of the year, according to a central bank report.

The Financial Stability Report showed the lenders’ solvency ratios would remain above the minimum requirements of 10 percent in a worst-case scenario.

The banks’ solvency ratios and the core Tier-1 capital ratios would drop 3.5 percentage points at most in a worst-case scenario from 14.2 percent at the end of June and a Tier-1 ratio of 13.6 percent, the Bucharest-based central bank said in its 2011 Financial Stability Report.

Policy makers expanded the list of assets they accept as collateral in open-market operations, and said in September they will accept euro-denominated bonds issued by Romania on international markets and leu-denominated bonds issued by global financial institutions, starting this month.

--Editors: Douglas Lytle, James M. Gomez

To contact the reporters on this story: Andra Timu in Bucharest at; Irina Savu in Bucharest at

To contact the editor responsible for this story: James M. Gomez at

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