Privatization of Romanian Banking System

As a financial power, the Romanian banking system is a frail one – “the value of the assets of the Romanian banking system totals at the given moment approximately 10 billion $, while the largest European bank owns assets that are 60-70 times higher”.

In fact, the internal banking capital has been deprived of a consolidation and concentration for a very long period of time – during the years of communism. Under these circumstances, it can in no way compare itself to the capital and respectively the assets from southern or western Europe, if Europe is the only part of the word we are talking about.

On the other hand, the Romanian banking system started to attract capital: French capital, with the largest contribution to the capital of a Romanian bank (BRD - Groupe Société Générale), as well as Dutch, American, Greek capital.

Practically, according to the analysis undertaken by Moody’s (January 2001) in entire Central and Eastern Europe, banking systems are being characterized by a high fragmentation level, having a large number of small-sized institutions, most of them without a powerful image and without major financial reserves.

A middle-sized Western – European bank, even a bank outside G7, owns balance assets ranging between 70-100 billion $, without mentioning the European bank giants. Deutsche Bank, UBS, BNP-Paribas, Barclays own balance assets ranging from 300-600 billion $.

Vulnerability was a label as undesirable for the Romanian banking system as its frailty. Rumors were able to shaken the Romanian banking system, the carelessness damaged the consolidation of the banking system in the case of many bankers.

A widely-spread phenomenon in 2000 was the “isolation” on the inter-bank market of some banks affected by rumors about alleged financial difficulties those banks were supposed to be going through. Due to the fact that these rumors can induce system crises if affecting an important percentage of the assets of the banking system, commercial banks convened to consolidate their cooperation on the inter-bank market, by granting liquidities and loans guaranteed by the Romanian National Bank to those banks which were isolated in the system and which needed money, especially if their situation had turned worse as a result of rumors.

After 1989, a series of changes like the emergence, development and consolidation of the private property, the increase of the number of economic agents, the increase of the demand for diversified banking services, had as a result the development of the banking system.

In order to do this, the banking system needed to be reformed and restructured.

If we take the figures into consideration, the restructuring of the Romanian banking system followed the tendency of the countries from our geographical area, which spent, without exception, more than 10% of their GDP.

Step by step, the National Bank became again the central bank of the Romanian banking system. Obviously, this task was not easy to complete after decades of degradation of its essential attributions, re-learning them is as difficult as walking for somebody who needs to learn to go again after having been bound to the wheelchair for years.

The landscape of the unique bank from the period of centralized economy ceased to exist, by the structuring of the banking system on two levels – the central bank and the commercial banks on one hand and the emergence of private banks on the other hand.

As a matter of fact, during the 14 years of transition economy, the Romanian banking landscape suffered adjustments and re-adjustments, which were concretized in the emergence of some banks and the disappearance of others.

The juridical framework of the banking activity has been continuously improved, even if there are many voices which vehemently and, in fact, righteously accuse a lot of aspects concerning banking activities, which still need to be legislated.

In April 1991, the Romanian Parliament ratified the law concerning banking activities (Law no. 33/1991) and the Law on the Status of the Romanian National Bank (Law no. 34/1991). These laws sanctioned the creation of a new, market-oriented banking system.

The new judicial framework encouraged the development of private-capital-financed banks and granted the national banking market free access to foreign financial institutions.

Banks were authorized to operate as universal commercial banks, having the possibility of delivering a large series of banking operations on the entire national territory, under the reserve of respecting the measures of precaution issued by the central bank, the latter one being the banking supervising authority.