Can banks regain the trust of customers?

Bankers saw population and companies’ trust in the financial system dwindling since the 2008 financial crisis. Their feeble attempts to regain reputation and trust led nowhere. However, the Romanian savings are up to unprecedented levels. Is that a sign of trust?

Bankers set their own misfortunes when dealing with mortgage lending. They are scaring up population with advance payments of more than 30-40%, as the “datio in solutum” law came into effect. The law allowing poor citizens and wealthy investors alike to give away the keys to unfinished projects, properties and flats whose mortgages can no longer be paid for, scares the bankers, as they don’t know what to expect. 

But as savings grew, it seems that Romanians do trust bankers, even if that trust does not come back to them anymore – interest rates dwindled to just about 2%. 

Compared with March 2015, Romanian deposits in banks increased by 9.5% in the third month of this year, on account of savings made by companies both in lei and foreign currency, which recorded an annual advance of 17.2% and 7.9%, respectively. 

RON-denominated household deposits rose slightly in March compared to February, 0.2% to 93 billion lei, but compared to March 2015 rose by 6.7% in nominal value (and 10% in real terms). 

While the foreign exchange-denominated savings also increased by 5% in real terms, with the household component of 4.4% and the companies segment up 6.3%, as opposed to March 2015.

But bankers complain that lending is dwindling, while margins in both profits and interest rates collapse. 

The corporate lending still works fine 

“Clearly there’s a decrease in margins,” says Mihaela Bitu, deputy CEO of ING Bank Romania. But as the risk differ with each client, also the margins differ, she explains. 

But the fact that the benchmark interest rates decreased, as compared to a few years ago, meaning the interest margins that banks use to make their own profits and cover costs also diminished, lead to a better client price, she explains. 

And some clients may present a bigger risk than others, driving money’s price up, as any other commodity would do. 

“It’s not just a question of margins, but a question of returns. As bankers try to keep profitability, for some there are better margins, but for those with the worse risk there are bigger margins, so it’s not a general level,” says Tibor Pandi, CEO of local Citibank arm. And as spreads in Europe contract, there are very good lending conditions for some customers, also explains Mihail Ion, executive director for Mid-Market Corporates and Public Sector, Raiffeisen Bank. 

Indeed, some of the largest Romanian projects were financed via syndications abroad. For example, the real estate developers borrowed money in Europe for two reasons: the Romanian market was too small to cover hundreds of millions of euros worth of risk, and the interest rates in the local market are still almost double to those offered in the EU. 

However, the realtors didn’t go too far to find their money, being sponsored by the mother-entities of the local banks.

Read the entire article in The Art of Living no 15 DOWNLOAD