Diagnosis: Insecurity. Romanians’ money and investment money: Tens of billions are lying in deposits of over EUR 100,000, without moving or building anything

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 cursdeguvernare.ro.

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 CursdeGuvernare.ro.

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.

Education

“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.

Publicat la data de 2.10.2017 .

Lasa un comentariu


SIMILAR ARTICLES

Marin Pana

Advance of real wage – a list of anomalies: Administration exceeds health domain by 44%, manufacturing sector drops to less than 90% of economy average

The average gross salary announced by INS for August 2017 was 3,290 lei, by 12% higher than in the previous month The net average wage was 2,364 lei, or 514 euros at the average exchange rate of September 2017 (the actual month of payment) or 1,004 euros in terms of purchasing power at the EU average prices Compared to the reference month of October 1990, the real monthly earning index ...
Read more »

Victor Bratu

Split VAT: What does not Government want to see in VAT fraud and why it has a different definition for the VAT gap than the European Commission

When it comes to the "VAT gap", the Romanian Government and the European Commission have different views on the elements contributing to this indicator Even different definitions The difference between the Government's approach and the Commission’s approach sets out two versions, both having an impact on the business environment, which is required to apply the split VAT: either the split ...
Read more »

Victor Bratu

Analysis person by person: Government members who decided on split VAT and protect their own companies of VAT split

Photo caption: Prime Minister Mihai Tudose publicly supports split VAT but the company in which he has declared interests does not support Mihai Tudose In the democracy, the power of example is a way often used by state officials to demonstrate the fairness of the decisions assumed We do not see too often that happening in Romania, nor does it happen in the specific case of the changes ...
Read more »

Mariana Bechir

Romania could become the only EU country where social contributions are paid only by employees

If the PSD-ALDE alliance does not reconsider the measure of transferring all social contributions to the employees, Romania will be the first EU country where employers will no longer contribute to financing the social security system In the table below, it is noted that all EU member states have divided this burden between the employer and the employee, and in most cases, the contributions ...
Read more »

Razvan Diaconu

BNR: Arguments of a monetary policy concession to government policy errors

BNR decided on Tuesday to narrow the "symmetrical corridor" between the interest rates of the standing facilities around the monetary policy rate (175%, unchanged), by increasing the deposit interest rate and lowering the Lombard rate At the same time, BNR also injected liquidity on the money market amounted to more than RON 9 billion by repo-type operations, buying government bonds from ...
Read more »


NEWS

European Commission’s announcement to Government and Parliament: Gas transactions market cannot be monopolized by OPCOM

Romania risks the infringement procedure if the Parliament adopts definitive amendments to the Emergency Ordinance 64/2017 on the natural gas market, which provides for the ... Read more

Ministry of Finance has sold euro bonds worth one billion euros on foreign market

The Ministry of Finance (MFP) placed euro bonds worth EUR 1 billion on the foreign market by reopening the issue with the maturity of 10 ... Read more

Ford launches production of EcoSport in Craiova. Total investment in Romania reaches over EUR 1.2 billion

Ford officially launched the production of the EcoSport SUV at the plant in Craiova, raising total investments in Romania to about EUR 1.2 billion, since ... Read more

VAT Directive - Reform plan: European Commission proposes to abolish zero rate on cross-border purchases

Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs, announced on Wednesday in Brussels the proposals of the European Commission for ... Read more

Total political control: Deputy Iulian Iancu insists on offering monopoly to OPCOM on gas trading

OPCOM will have a monopoly on the operation of centralized natural gas markets, and producers will be required to trade, as of January 1, 2018, ... Read more

Romania - world champion of frontier markets in 2017, by return on stock exchange investment

Evolution of BET-TR since the beginning of the year The Romanian capital market had the highest growth among all 23 countries in the portfolio of ... Read more

Investment of the poor: MFP sells one-lei treasury bonds to population and money will be blocked until maturity

The Ministry of Public Finance (MFP) wants to raise money to the budget, leu by leu and says that treasury bills, whose issues have already ... Read more

Strong warning from European Commissioner for Energy: Regulators must be completely independent. BRUA continues

The European Commission monitors the real independence of the regulators in the member states and will take all necessary steps to ensure that it is ... Read more

China's sovereign wealth fund, owner of four logistics parks in Romania

The European Commission has approved the EUR 12 billion deal by which China Investment Corporation, China’s sovereign wealth fund, has taken over the assets of ... Read more

Transelectrica announces that it lends money for investments after Government seized its financial reserves

The national energy system operator, Transelectrica, a state-owned company operating the National Energy System (SEN), tells shareholders that the distribution of additional ROL 171 million ... Read more

Oracle transfers most of its European hardware support activities to Romania

Oracle, the world’s largest software developer, will transfer most of the European hardware support activities to Romania, to reduce current costs. The process of closing ... Read more

LSE Study: Ten Romanian companies can inspire Europe with their rhythm of growth. Meanings of this selection

London Stock Exchange (LSE) analysts have identified ten Romanian companies among the 1,000 small and mid-sized firms in Europe that can inspire the others with ... Read more

Eastern European countries’ exports of weapons increase. Not Romania’s ones

Producers of bullets, assault weapons, and rockets from former communist countries in Eastern Europe saw a significant increase in orders following the conflicts in the ... Read more

European Commissioner: Brexit will decrease budget for Regional Policy by 10-12%. Member states will have to cover these amounts

The budget allocated by the EU to the Regional Policy will decrease by approximately 10-12% after the exit of the UK from the Union, said ... Read more

Government prepares to guarantee unchanged royalty regime throughout offshore concession contracts

The Government is trying to speed up the implementation of the offshore oil operations. There is a bill at SGG that assures companies having oil ... Read more

Consultations on security topics between Poland, Romania and Turkey with participation of Jens Stoltenberg

Preparations for the NATO Summit in 2018 and the reform of the allied command structures were the main topics for the last week’s meeting, on ... Read more

Representatives of prosecutors across the country reject Minister's proposals to amend justice laws

Representatives of prosecutors from all over the country have rejected amendments to the justice laws proposed by Minister Tudorel Toader, General Prosecutor Augustin Lazar said ... Read more

Average monthly spending per household in 2016: Education - 4 lei, Telephone services - 90 lei

Last year, a household spent a monthly average of 4.05 lei for education, 90.71 lei for telephone services and 26.26 lei for health services, according ... Read more

Cost of state indebtedness rises and drags euro exchange rate with it

Government’s hunger for money causes a growing demand on the market, which increases the borrowing cost for the state and encourages distrust in the national ... Read more

Mihai Tudose about royalties: A new law to enter into force on January 1, 2018; royalty level will "depend on companies’ behaviour" in terms of prices pushed by the new excise duty

Prime Minister Mihai Tudose has announced the date of January 1, 2018, as a “certain” term for the entry into force of a long-delayed new ... Read more

File / Share of French investments in Romanian industry decreased compared to 2007. Investment in agriculture and utilities increased

The share of direct investment (FDI) made by French companies in the Romanian industry fell from 56% of total French FDI in 2007 to 46% ... Read more

Prime Minister Mihai Tudose - threats and warnings to banks and oil companies: Romantic period has passed

Prime Minister Mihai Tudose has released several strong signals to banks and oil companies. He says that he is willing to take major risks in ... Read more

MApN states its availability to buy US attack helicopters

Defence Minister Adrian Tutuianu has signed on Wednesday a letter of intent on price and availability regarding the purchase of attack helicopters produced by Bell ... Read more

Minister Ionut Misa: Salary growth to increase public pension fund deficit by 22% in 2018 compared to 2017

The deficit of the public pension fund would be 17.2 billion lei in 2018, up 22% from 14.1 billion lei this year because of the ... Read more