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de Adrian N Ionescu 2.10.2017

Between Romanians’ savings and the increase in the force of the domestic capital investment another significant fracture, deepened by the public policies, intervenes.

As far as they exist, public policies on personal investment have not stimulated population’s appetite for that, nor did they encourage the stock exchange mechanisms of transferring personal investment for capitalizing the companies, according to the analysts surveyed by

A greater openness to investment would be expected at least from the 28,000 individuals who have at least the equivalent of 100,000 euros in one or several bank deposits.

Reality is contrary to expectations: not even the money that is not covered by the Bank Deposit Guarantee Fund (FGDB) is channelled to investment. Nor the fact that interest rates are at historical minimum levels for a few years seems to be relevant.

The culture of personal investment is suffering, although had a progress since 2000.

A very small part of the savings goes to the most elementary of the personal investment instruments, mutual funds, although an amount of RON 82.8 billion was not covered by FGDB at June 30, 2017, because it exceeded the guarantee threshold of EUR 100,000.

Only about 20% of the total value of bank deposits over 100,000 euros (EUR 104.7 billion) was covered by FGDB at June 30, according to its data.

Since the end of 2015 until 30 June 2017, the number of deposits over EUR 100,000 has increased by 5,182.

Romanians had RON 244.5 billion in banks at June 30, according to FGDB.

By contrast, mutual funds had net assets of over RON 22.58 billion at June 30, 2017, and net underwritings in mutual funds barely amounted to RON 560 million (EUR 123.5 million) in the first half of 2017.

The situation is even more dramatic for companies, which have not learned the treasury investment technique, despite several exemplary situations in the last two years and that is because they either cannot or do not want to use the capital market for financing.

What’s missing?

Beyond the perpetual deficit of financial education that everyone is complaining about, there is a lack of public policies to stimulate personal investments so that they can be made available, through professional management, to companies looking for financing resources.

Apparently, we have almost everything we need: “We have the Pension Pillar II (mandatory), we have the Pension Pillar III (optional but with tax deductibility) and we have investment funds (optional and without deductibility). In terms of long-term savings products, it is likely that only the occupational pensions are missing. Of course, we can discuss how they are built, about the level of contributions, deductibility but it is important that we have a wide range of options,” reminds Mihai Purcarea, General Manager of BRD Asset Management, one of the largest investment management companies in Romania.

Of course, we also have a stock exchange but things get complicated in this field, despite the great successes of the listing of large private companies (MedLife and DIGI Communication) completed lately.

What is lacking in public policies to stimulate personal investment and channelling them to the capitalization of Romanian companies? – asked

Just the public policies are lacking, to stimulate personal investment. Under the circumstances in which the state has applied wage and pension increases, largely directed towards consumption, it is difficult to find recommendations in the public space to invest in the Romanian companies, (potentially) beneficiaries of this wave of economic growth”, says Adrian Anghel, Sales Manager of OTP Asset Management Romania.

Undermining trust

Even worse, authorities do exactly the opposite of stimulating personal investment, and they destroy by their behaviour and official decisions, rather than strengthen the confidence in the investment channels, encourage it.

All we have to do is continue on the way we started. That is the development of alternative financing channels to the banking system. Unfortunately, the attack on the private pension system is a step in the opposite direction,” says Radu Craciun, a financial market veteran.

After the pension funds represented “the institution that allowed for the fastest aggregation of the domestic capital, following its disappearance or weakening, there will be no other process capable of producing results of similar magnitude,” says Radu Craciun.

The current fight against the pension fund managers risks destroying any chance of establishing trust between the population and the investment fund sector, making Romanians and the economy exclusively dependent on the banking sector,” said the expert.

On the other hand, the assets of the open-end investment funds have doubled over the last four years, the number of investors on the stock exchange is increasing, more and more people are participating in the public offerings. “What started to go well should not be ruined,” says Cristian Tudorescu, Managing Partner of Explore Asset Management.

What or who could ruin this evolution? “For example, the measures against the financial market, which reduce the confidence that has been gained,” Cristian Tudorescu reminds as well, referring to “the repeated attack on the privately managed pension funds”.

Pension funds are not just the depositaries of a part of Romanians’ financial assets but also “a long-term stabilising factor for the market. It is stupid not to encourage the Romanian capital when it accumulates in the private funds, then to shout after him, when it dissipates to many directions,” the expert says.

Instead, “a less arid institutional environment would be wanted. I have heard, for example, quite often lately that it is easier to open a production unit in Germany than in Romania. I hope it is an exaggeration but I am afraid that all levels of control and bureaucracy that pressure down the entrepreneurs hurt us all, not just companies,” said Ovidiu Dumitrescu, Deputy General Manager of Tradeville.

Balanced taxation

Taxation could be a way of encouraging the appetite for transforming savings into investments accumulated and made available to companies, through professional management. Provided there is a sustainable tax policy balance.

If the fiscal policy “encourages” the distribution of dividends, “in the mid-term, we do not encourage at all Romanian companies’ capitalization” (…) “The tax relief must occur in other areas, for example on labour, to leave more resources available to companies, resources to be invested in growth”, according to Cristian Tudorescu.

At the same time, “supporting long-term savings through tax deductions can be an important step taken by the Romanian state, a step that would decisively contribute to increasing the wealth of the citizens of this country”, Adrian Anghel believes.

Finally, as the capital accumulations in the investment funds are directed towards the capital demand on the BSE, “the Romanian state could be the beneficiary of a strong regional stock exchange if it understands to promote a tax policy that is beneficial to the long-term investment development,” says the director with OTP Asset Management.

“The state’s involvement by tax deductions to support the concept of long-term savings is very important,” Adrian Anghel also says.

On the other hand, “instead of tax deductions, I believe there should be a preferential tax rate for the dividends of companies that are listed and have a free float of over 40%,” said Ovidiu Dumitrescu, from Tradeville.

Wounds hard to heal

17 years after the investment funds industry revived, their managers do not have a unanimous opinion about the healing of the wounds produced in the first decade of transition to the market economy.

Some of the experts surveyed believe that the effects of the authorities’ indulgence in treating the frauds committed in the 1990s are still felt.

There is still a deep sense of suspicion and, in addition, a lack of information that leads people to ideas that theoretically are bizarre like, for example, that an investment in real estate is safer than on the stock market,” says Ovidiu Dumitrescu.

“We have probably lost 10-15 years of development because of those events but now we have overcome that unfortunate legacy. Most companies active in the field are part of strong banking holdings with a good reputation, believes Mihai Purcarea, the General Manager of BRD Asset Management.

At the same time, independent management companies that have remained on the market have also strengthened.

“Given that we are talking about a penetration among the population of the stock exchange and investment funds below 2%, we believe that figures speak for themselves. (…) It is also our duty, those in the financial industry, to tell people that things have changed completely since the 1990s, the Romanian asset management industry is functioning at the European standards, there is an entire system of control and verification,” says Adrian Anghel.

On the other hand, the state has missed the effect that “mass privatization programs should have had, by which the population became a shareholder at some point (…) did not actively support financial education and did not explain the advantages of being a shareholder or investor,” adds the OTP Asset Management director.

On the contrary, mass privatization was ultimately but a mean of accumulation of shares, while the Romanian governments preferred privatizations based on bilateral, non-transparent negotiations, not on the stock exchange.

Unbalanced demand

One of the results of the lack of a consistent policy to stimulate capital market investments: the imbalance between companies’ reduced appetite for financing through the capital market and the concentration of resources in banks, an imbalance that has also caused the National Bank’s concern.

“In the sector of state-owned companies, the financing projects are very difficult, so neither the long-term instruments can be developed,” says Cristian Tudorescu.

In the private sector, “the business environment is very polarized. On one end we have the winners who have easy access to financing or do not need funding and at the other end the not capitalised or troubled companies. In Romania, we do not have a consistent layer of middle-class companies, those that need financing and have decent financial indicators,” adds the Partner of Explore Asset Management.

“Overall, Romanian companies are rather undercapitalised, access credit products and are rather oriented to the organic growth, increasing production capacities. The long-term saving capacity of Romanian owned companies is still at an early stage,” says Adrian Anghel.

However, “we have seen more and more companies that have started to optimize their cash flows using short-term monetary investment or bond funds. These funds are used especially for the cash-management process, provided they have a very low level of risk and generate net returns higher than overnight deposits or savings accounts,” adds the OTP Asset Management director.


“The main barrier we are facing is the financial education, the culture of saving and investment. Over the last years, we had one of the highest economic growth in Europe. We can benefit directly through salary increases but also equity participation by investing in the companies that generate this economic growth. Unfortunately, in most of the cases, this second option is unknown,” says Mihai Purcarea.

“I believe it would be desirable to encourage Romanians to invest through professionals who manage pension funds or investment funds, having this way a portfolio that would correspond to the risk level that they want. It would be another way for much more Romanians to be present on the capital market,” reminds Radu Craciun.

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