Professional Documents
Culture Documents
The forerunner of the National Bank was the first banking company set up
in 1866 in Bucharest under the name of the Bank of Romania, a company
whose deed of concession was signed by Prince Alexandru Ioan Cuza.
On April 17, 1880, Parliament voted and passed the foundation law of the
first banking institution, which was to play a major part in the economic
development of the country.
The new institution called also “The Bank of Banks” fully matches as
functions and organization the similar institutions in the Western countries.
Since its establishment and up to World War I, the National Bank played a
major part in financing the banking system by means of discount credits.
Characteristic of the interbella activity of the National bank was its financial
support for the country’s economic rehabilitation, for the swift accumulation
of capital, for the strengthening of domestic industry, for the unprecedented
expansion of the financial market, the growth of Romanian exports and
participation in wide-scope international transactions. Significant for the
spectacular boom of the Romanian banking system by then was the rise in
22
The National Bank of Romania 1880-1995, Ed. Enciclopedica, Bucharest 1995
the number of the joint stock banking companies from 215 in 1918 to 1122
in 1928.
The financial and banking system was well organized in those years,
offering the favorable pre-requisites for obtaining on the eve of 1938
competitive economic indexes in general as well as in many specific fields,
as compared with to the standards reached in the other European countries.
The ascending course of the National Bank of Romania was abruptly and
naturally interrupted in 1945, when its functions as a unique issuing
institutions and as a Bank of Banks were altered and when it artificially took
over some of the functions of the Commercial Banks; moreover, it suffered
also the central-planned immixtures in the monetary and financial policies.
Consequently, the banking system was a mono-banking system up to 1990,
in spite of existence of four specialized banks, dominated by administrative
control, which ignored the real development of economic mechanism.
The National Bank regained its natural activity in 1990 when it resumed its
status of Central bank and its traditional functions, commercial activities
being transferred in the process to the Commercial Banks.
In 1991, when the Parliament passed the law on Banking Activities (Law
No. 33/1991) and the Law on the Statute of the National Bank of Romania
(Law No. 34/1991) they actually created the legal framework for the
independence and reinstatement of the Central Bank in its functions.
The legal framework of the banking system was reshaped and improved in
the first half of 1998, when three banking laws were enacted: the Banking
Law (No. 58/1998), the Statute of the National Bank of Romania (No.
101/1998) and the Law on Bankruptcy Proceedings for Banks (No.
83/1998). By the enactment of the new legislation, together with the Law on
privatization of state-owned banks (no. 83/1997), the weaknesses of the
former legislative framework were corrected in order to ensure a sound and
stable banking system, to strengthen the independence of the NBR and its
enforcement powers and to improve the exit mechanism for ailing banks.
Number of
Type of institutions Assets Assets (%)
institutions
Commercial Banks 233.254 90,5 41
During the last decade, the main characteristics of the banking system have
been concentration and segmentation. Despite the increasing number of
banks over the recent years, there are four banks dominating the market,
which account for approximately 60 percent of the banking sector’s assets,
more then 60 percent of the deposits and more then 60 percent of the paid- in
capital at the end of June, 2000. 23
23
Romanian Financial Directory 2000, Finmedia Directories Series
Concentration indicators
The NBR tries to stimulate, within the legal framework, the establishment of
branches and subsidiaries of foreign banks, as they play an important role in
developing the range of banking services and improving their quality.
There are different kinds of banks when considering capital that can apply
for banking licenses issued by the NBR:
I. Romanian banks, of which:
a). fully or majority state-owned capital, out of which:
24
Claudiu Doltu, The Evolution of the banking system in Romania, The Romanian Center
of Economic Policies, www.cerope.ro
- fully state-owned capital (e.g. Savings Bank);
- majority state-owned capital (e.g. Romanian Commercial Bank);
b). fully or majority private capital, out of which:
- fully or majority domestic capital
- fully or majority foreign capital
II. Foreign banks branches, such as ING Bank, United Garanti Bank
International, Banque Branco-Roumaine. 25
At the end of September 2002, there were 38 banks, Romanian legal
entities, including 8 branches of major foreign banks. This number rose
significantly from 7 banks in 1990.
25
Ligia Georgescu-Golosoiu, Business of Bnaking, Editura ASE, 2002
Directors are appointed and replaced by Parliament on the recommendation
of the Prime Minister.
The Banking Law (No. 58/1998) applies to banks, Romanian legal entities
and to foreign banks’ branches operating in Romania. The law provides that
banking activity may be carried out by other entities under specific law, by
observing the provisions of the banking law. For instanc e, the Savings Bank
is governed by its own law and, in the first half of 2000, the Government
issued an Emergency ordinance in order to regulate the functioning of credit
co-operatives, establishing a regulatory and supervisory authority.
The banking law defines the permitted and prohibited activities, licensing
procedures (including revocation of the license) and rules for mergers and
divestitures. It deals with problems of organization and management,
defining the powers, responsibilities and the required qualifications of the
banks’ managers and auditors. Minimum capital requirements) including
capital endowment for foreign banks’ branches operating in Romania),
prudential rules and indicators (capital adequacy, large exposures, required
reserves, loan classification and provisioning) as well as accounting
methodology are also defined. The regulatory powers of the central bank are
strengthened. The NBR may take measures for special supervision and
special administration over banks. The central bank’s control over
shareholders is reinforced and all changes in the situation of a bank must be
approved by the NBR under the terms of specific regulations.
Among the permitted activities, the law provides that transactions on the
capital market may be performed by banks only via own securities
companies, except the cases when the capital market legislation allows such
activity to be performed by banks. The law states that banks may perform
financial leasing operations via leasing companies established specifically
for this purpose. The banking law introduces mandatory external audit for
the banks to be carried out on an yearly basis.
Banks in Romania are currently barred from owing more than 20% of the
share capital in an insurance company, but the commercial banks already
holding a stake in insurance-reinsurance companies might be allowed to
increase their ownership to over 20% according to a modification to the
Bank Law advocated by Romania’s National Bank. The modification would
encourage banks to increase their involvement in the insurance market,
either by augmenting their current shareholdings or by creating new
insurance companies. According to this proposal, bank ownership in
insurance companies will not exceed 60% of the bank’s equity. The largest
bank participations are currently ASIBAN, BCR Asigurari, Omniasig and
ARDAF. Increasingly more banks have over the past years promoted the
concept of bank assurance, which entails rounding the usual bank services
with insurance and leasing products. The insurance companies are expected
to gain a lot if the proposal is carried, as their needs for capital are stringent.
The Romanian Commercial Bank and the Transilvania Bank are the only
Romanian banks to have so far created their own insurance arms- BCR
Asigurari and SAR Transilvania, respectively. Romanian Commercial Bank
is the heaviest involved bank in the insurance market, also thanks to its
stakes in Omniasig and ASIBAN stand-alone insurance companies. Banc
Post is also holding 19% of the shares in Garanta, while Raiffeisen Bank
owns shares in Agras.
As expected, this situation didn’t last too long. In June 2000, the liquidity
crisis started with the major popular bank: the Romanian Popular Bank.
This had a negative impact over the entire system of cooperative
organizations and weakened the financial sector, which had already been
influenced by the story of National Fund of Investment (FNI) story and
bankruptcy of the International Bank of Religions 26 .
At the end of June 2000, the government issued Emergency Ordinance No.
97, amended by EO no. 272/2000 and completed by the Norms no. 7/2000
and 2/2002 of NBR to regulate the way of functioning and reorganization of
the credit cooperatives and to suspend the setting up of new popular banks
according to the old legislation.
26
Piata Financiara magazine, No.11/2002
The new regulation makes a clear distinction between the non-banking
intermediaries and the commercial banks. The Ordinance stipulates the
changing of the cooperative organizations into networks (made by a central
house and credit cooperatives affiliated to this) or their reorganization as
commercial banks. In addition, the National Bank of Romania will
supervise their activities, pursuing the regulations of the central bank
regarding the prudential, accountability requirements and the monetary,
credit, foreign exchange, payment policies.
The minimum capital accepted at the level of a network was established at
150 billion lei, arising objections on the part of these institutions. They
argued that the members of cooperatives are natural persons with low
incomes, diminishing the chances of the cooperatives to comply with this
criterion. NBR motivated its decision by the necessity to comply with the
provisions of the Community Directives, which stipulate a minimum level
of 5 million Euro for the initial capital of a credit institution.
The deposits of populations will be under the scope of the Guarantee Fund
of Deposits, but only after the authorization of the network by the central
bank; compensation will be made only in case of bankruptcy of the central
house. In case one of the cooperatives will be unable to fulfil the payment
obligations, the central house will provide the payment from the reserves
made at the level of the network.
The authorization of the networks of cooperatives by the NBR implied three
stages. The first one consisted in the process of notification for
reorganization. The deadline for application was 13 February 2001. Out of
10 networks that submitted the application, the central bank gave positive
answer to only five: Aurora Romana, Concordia Romana, Creditul
Romanesc, Creditcoop, Creditul Popular. At that time, these five networks
contained 987 cooperatives. The reasons for the rejection of the others
(Milenium BPR, Pontica Bucuresti, Star Petrosani, Familia and Minerva)
were related to the existence of a negative difference between the assets and
liabilities and the failure to pay off some obligations that became due.
In the second stage, the NBR had to approve the common reorganization of
the five networks. The central bank approved only four of them, including
784 cooperatives; the network Creditul popular was not accepted. At the
same time, 13 cooperatives included in those four networks were rejected.
The last stage, which is rolling on, consists in obtaining the authorization of
functioning for the central house and the affiliated credit cooperatives.
According to economic theory, credit cooperatives could stimulate the
economic growth for the less financial developed areas, by allowing many
credits with low value for small enterprises.
The high costs of selecting and supervising this type of customers make the
banks less interested in allowing such credits. On the other hand, the setting-
up of the cooperatives, where the members are at the same time customers,
offer the advantage of mutual supervision which entails lower costs.
All these elements back up the idea of setting up credit cooperatives, but in
practice, for one reason or another, the outcome didn’t meet the
expectations. In addition, in the case of Romania there was identified a
specific element, denominated as agency cost, in economic terms. Thus, the
associations of the cooperatives at the level of organization give rise to the
number of members, generally persons with low income, who ask for credits
with an average value of 3-5 million lei. This led to a fragmentation of
decision power (because each member has one vote irrespective of his
contribution to the social capital), the influence of the members in the
cooperative policy being almost nonexistent. As a matter of fact, most of
them were not even interested in their rights in the General Assembly, and
the management had the entire power to decide over the destination of the
financial resources. In this way, the members of the board allowed high
priority to their personal interests, as there was no any supervision of the
central bank. The most common example is The Romanian Popular Bank.
The new legislative framework will allow a sound development for credit
cooperatives, the principal reason being the supervision by the central bank.
Thus, the credit cooperatives will have to fulfil the prudential requirements,
related to the solvency and liquidity ratios, maximum aggregated exposure
and the maximum exposure for one debtor. But, according to international
practice, the purpose of supervision of cooperatives should be different from
that of commercial banks. The management of the cooperatives is focus
more on using money in its personal interest rather than assuming credit
risks.
As commercial banks have already penetrated the market of the microcredit,
the chances of the credit cooperatives to gain substantial market shares in
their traditional field of operation, are quite low.
Further more, the long elapse of time for authorization and gaining the
confidence of the population for credit cooperatives will favor the
commercial banks that will consolidate their position in allowing
microcredits.
It is doubtful that the new cooperative networks, no matter of their liquidity
and solvency, would gain a substantial market share since the target field is
more and more restraint.
The past experience is unfavorable for them, in the same way, as the
bankruptcy of the FNI for the future development of investment funds.
Even though in practice the first pop ular bank was set up by Ion Ionescu from Brad, around
1860, the founder of the popular banks is considered professor Spiru Haret. The initiative of
the movement which came up with this idea belong to the rural teachers group. But the real
merit is allowed to the professor Sipru Haret, not only because he put in practice this idea, but
also because he gave the impetus to a new trend favorable to setting up of the popular banks.
He considered these ones the most appropriate institutions to allow cheap credits to rural
population. Law of rural popular banks and the Central House was issued on 28 March 1903.
It included clear provisions regarding the setting up, the incorporation and the functioning of
popular banks.
The Central House, in direct relationships with the central bank, was set up to control, guide
and finance these institutions, discounting the portfolio or receiving credits when necessary
from the central bank.There was a flourishing period so named “the heroic period of the
Romanian cooperation” after the law was issued.It represented not only an increase in the
number of these institutions (from 26 in 1898 to 2 965 in 1918), but also a growth of the
funds available.
Thus, in 1912, the popular banks had 30,64% of the social capital in the financial system, and
their creditworthiness was represented by the fact that 32,5% families in the Old Country
were members of these credit institutions. Probably, this was an effect of the stated purpose
of these institutions, namely to raise the life standard of the rural population.The activity of
the popular banks was stimulated also by the credits offered by the Central House
(owned by the state) and also by the National Bank.
During 1908-1917, the credits allowed by the popular banks accounted approximately 88%
from their total assets, and their activity had so much rentability as their net profit was almost
equal to the allowed credits. Some of them, having to many funs, built schools. The most
powerful of them initiated great businesses: in 1902, the Novaci Bank bought 11 mountains
and estates.
Even though the popular banks in that period represented an intermediary system between the
types Schulze-Delitzsch and Reiffeisen, 90% had an unitary statute and pursued the same
objective: credits for the needs of the rural population. Nowadays, the popular banks want to
change their statute to become commercial banks
Privatization of the banking sector
Privatisation of the Agricultural Bank ended with the sale, on April 12,
2001, of the state equity holding to the consortium made up of Raiffeisen
Zentralbank Osterreich A.G. (93.13 percent) and the Romanian-American
Enterprise Fund (5.7 percent). Referring to the stage of privatization process
of Romanian Commercial Bank, the privatization strategy was approved in
2001 by the empowered institutions (National Authority for State-Owned
Assets Management and Privatisation, Ministry of Development and
Prognosis, Ministry of Public Finance and the National Bank of Romania)
and will be completed in the following years.
Main shareholders
Total Capital share
Name Year assets (%) Name (%)
Banc Post 4.03 EFG Eurobank Ergasia 19,25
Banco Portugues do Investimento 17
General Electric co. 8.75
BRD 16.16 Societe Generale 51
BERD 4.99
Banca Agricola 2001 3.98 Raiffeisen Zentralbank 93,36
Fondul Romano American 5,72
The Romanian banking sector also faced problems specific to the transition
economy. This state of affaires called for stepping up bank reform through
fast-track privatization of some banks (The Romanian Bank for
Development in 1999 and Banc Post in 2001) as well as through the
implementation of a rapid bank purging program by the central bank in
1999-2002. Therefore, tough measures were taken, including the merger of
the largest state-owned bank, Bancorex, through absorption with another
large bank, Romanian Commercial Bank and the initiation of bankruptcy
proceedings for four other smaller privately-owned bank (Credit Bank,
Albina Bank, Bankcoop and International Bank of Religions ). The license
of Columna Bank was withdrawn in 2000 due to serious violations of the
laws and regulations. Restructuring and privatization of the banking sector
represented, in the above-mentioned period, one of the basic objectives of
the structural reform program supported by the International Monetary Fund
and World Bank.
Throughout 2001, the NBR together with Romanian and Turkish authorities
strove to solve the problems that Romanian-Turkish Bank was facing. In the
absence of any favorable developments, after all attempts to get the bank
back on track or sell it had failed, the NBR Board revoked the license of the
Romanian-Turkish Bank pursuant to the Decision of the NBR Board issued
on April 30, 2002, and filed a petition for the start of bankruptcy
proceedings.
Banks and the National Bank of Romania are the users of the CIB database.
The exchange of information is made through the Interbank Communication
Network.
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www.bnr.ro
Information is forwarded to the PIB by computer system, using the
Interbank Communication Network that links the National Bank of Romania
head office to the head offices of all banks.
The PIB database is organised in two main files: the National File on
Payment Incidents and the National Risky Persons File. All payment
incidents, irrespective of the cause that generated them, are registered in the
National File on Payment Incidents. The National File on Risky Persons
contains all major payment incidents generated by causes such as:
• payment instruments drawn on overdraft;
• cheques issued without authorisation of the drawee;
• cheques issued with false date or missing a mandatory specification;
• traveller's cheques or circular cheque issued as bearer cheques;
• cheques issued by a drawer banned from performing banking
operations;
• bills of exchange discounted without total/partial surrendered claim
when transferred.
Financial resources of the Fund are built up mainly from the contributions
of banks, Romanian legal entities or foreign bank branches that are licensed
or going to be licensed to raise funds from natural persons in compliance
with the provisions of Law No. 58/1998 - The Banking Act. The Fund
invests the amounts raised mainly in government securities.
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www.bnr.ro
In case of a bank's insolvency, the Fund guarantees the payment in ROL of
deposits, irrespective of the currency or the number and size of deposits,
within the guarantee ceiling that is updated half- yearly with the consumer
price index. The guarantee ceiling includes interest on the respective
deposits accrued until the date deposits became unavailable. For the latter
half of 2002 the guaranteed ceiling is ROL 109,795,000 per depositor.
At the request of the Fund's Board, the National Bank of Romania may
change the licence of a bank by waiving its right to take deposits from
natural entities should a bank fail to comply with the obligations provided
by the ordinance.
Summary
§ Hystory of the Romanian banking system
- 1865: first modern commercial bank – The Bank of Romania;
- 1866-1880: 3 credit institutions;
- April 17, 1880: the National Bank of Romania as a commercial and
issuing bank.
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www.bnr.ro
§ The evolution of the banking system during the communism regime
- the 1934 banking law was abrogated by the Decree Law no. 197/1948
- almost all the Romanian and foreign-controlled banks were liquidated,
the remaining banks under Commercial Code and their specific laws
- mono-banking system corresponding to a centralized economy
- the NBR – agent of the state acting as a central bank and a commercial
bank
- 3 specialized banks for credits: Bank of Agriculture and Food Industry,
Romanian Bank for Foreign Trade, Investment Bank
- the single institution to receive credits for population: the Savings Bank
§ The banking system in Romania after 1989
- the new banking system started on December 1, 1990
- two levels: NBR as a central bank and the commercial banks
- the Law on banking activities (33/1991) and the Law concerning the
Statute of the NBR (34/1991) according to the market economy
principles
- the former commercial banks changed and new commercial banks
were established
- the new laws were introduced in 1998: 58/1998 and 101/1998
- until December 31, 2000: 33 banks Romanian legal entities and 8
branches of the foreign banks
- new regulations of the banking system: Law 375/2002 and Law
101/1998 was modified
§ Banks operating in Romania, by type of capital
1. Fully or majority state-owned capital
- majority state-owned capital
EX: BCR-70% – Romanian State Ownership Fund
-30% – (5) private Romanian Financial Investment Companies
(FIC)
-fully state-owned capital
Ex: Savings Bank – 100% state owned bank with the Ministry of Finance as
sole shareholder
2. Fully or majority private capital out of which:
- fully or majority domestic capital
EX: Transilvania Bank -77,61% – Romanian
-23,39% – foreign
- fully or majority foreign capital
Ex: Piraeus Bank Romania- 99,9930% – Piraeus Bank Group Greece
- 0,0069% – Romanian individuals
3. Foreign banks branches
Ex: ING Bank N.V. Bucharest Branch – 100% ING Group NV, Amsterdam,
Netherlands
Check out questions
3. Set forth three main features of the current Romanian banking system.
5. Set forth the meaning of the concentration and segmentation features for
the Romanian banking system.
References