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State, in a harsh competition with companies for money from banks

de Adrian N Ionescu 5.3.2017

The balance of government credit (including local government) was 92.2 billion lei at the end of 2016, which represents over 86% of the corporate loans, according to the National Bank of Romania (BNR).

In other words, the banks use their lending resources for financing the state almost as much as for financing the companies, as it is well-known that financing the state is a safer and easier way to make profits than financing the companies.

Also, the government credit represents 41.9% of the total non-government credit that also includes the loans granted to households.

*

  • Government vs non-government credit
  • Indicators        31 December 2016 (million lei)           Dec 2016/Dec 2015 (%)
  • Government credit
  • Corporate loans
  • Non-government credit (total)**
  • Leu-denominated non-government loans
  • – households
  • – corporate loans (non-financial corporations and non-monetary financial institutions)
  • Forex-denominated non-government loans
  • – households
  • – corporate loans (non-financial corporations and non-monetary financial institutions)

*

On the other hand, the corporate loans reached in September 2016 only to the share in the lending structure in Romania registered in 2009. That year was the peak moment of financial crisis when confidence in the reimbursement capacity of companies and populations was at the lowest level.

In the same time, the share of the government credit was at the maximum level of the previous nine years, above the level of 2010.

*

  • Structural evolution of the main balance components (%)
  • – corporate loans
  • – claims on BNR
  • – claims on the government sector
  • – external assets

*

The credit structure in Romania favours the risks related to the financial macro stability, given that the country is already subject to “significant risks”, according to the latest BNR report on this topic.

The domestic banking sector already has a high exposure to the government sector” and this situation would add to the problems related to the capacity to finance the public deficit, induced by “the economic growth mostly driven by domestic consumption that has also been translated into pressures on the trade balance”, according to the BNR report on the financial stability, issued in December 2016.

The problems related to the capacity of financing the deficit translate into costs in the end, according to the same report.

“The mechanism of price formation on the markets of public debt instruments has gained an increased attention in the specialized literature, especially following the recent financial crisis, which proved that the investor perceptions on the economic situation of a country can significantly influence the funding costs of the sovereign debt. In this context, the evaluation of the price formation of the government bonds and the CDS-contracts is relevant to the policy makers because it allows a deep understanding of the way in which the evolution of the fundamental factors, as well as the evolution of the investor perception, are transmitted to the financial market quotations,” says the report.

January 2017

In January 2017, the government credit decreased “against the background of an increased risk perception, with an impact on the behaviour of individuals and companies, given the events from the public sphere”, according to a report released by Banca Transilvania.

The total non-government credit decreased in January for the second month in a row by a monthly pace of 0.9%, down to 218 billion lei, the minimum level of the last four months.

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